I like to use car shopping as an analogy to the investing process. Let’s imagine what it would it be like to buy a car with a view only to targeting our tolerance for risk and forgetting why we are tolerating risk.
Car Shopper: “I am considering these two cars, can you explain to me the difference between them?
Car Salesperson: “Sure thing. The one on the left will give you a whiplash when hit from behind and the airbag will break your nose. The one on the right will actually break a number of bones, including a collar bone and will possibly give you back pain for a good long while. Now, which risks are you ready to tolerate?
Car Shopper: “I’ll take the broken nose please…”