A tripod remains steady on an uneven surface, like a three-legged stool or table. A stable investment plan balances on three legs: the desire to make money, the desire not to lose money, and the length of time necessary to carry out the plan.
Such an “investment tripod” can stand firmly on an uneven surface: markets.
Markets fluctuate, introducing the element of risk. When markets tumble, fear drives some investors to sell their holdings at a loss which neutralizes their desire not to lose money…and that tripod tips over.
Greed makes some investors hold an investment beyond its highest possible price, crippling the desire to make money…and that tripod tips over.
The longer a properly balanced collection of investments can stay in the market, the more bumps it can absorb and return to or surpass average market performance over time. If the time horizon is too long, the investor dies before he can enjoy the results of his plan. If the time horizon is too short, the investor may be forced to accept less than average results…and in either case the tripod tips over.
Have you arranged a three-legged investment plan that won’t tip over?