Here’s a fascinating article that talks about some rather elementary but profundly important.
Successful investing requires that investors navigate around a large number of risks throughout their lifecycle. We believe that the two most daunting risks investors face are the risk of failing fast and the risk of failing slow.
Slow failure occurs when an investor does not grow their investment capital sufficiently over time to meet future real liabilities. This often occurs because they fail to save enough or because they invest too conservatively.
Fast failure occurs when an investor – often those who are living off of portfolio withdrawals and for whom time is no longer an ally – suffers a significant drawdown that permanently impairs their portfolio.
We believe that sensitivity to these risks should dictate an investor’s allocation profile. Investors sensitive to slow failure should invest more aggressively and bear more risk in certain bad states of the world for the potential to earn excess returns in good states. On the other hand, investors sensitive to fast failure should invest more conservatively, sacrificing returns in order to avoid catastrophe.
I’d highly recommend reading the full article. it’s chock full of insights: