By Carl Szasz, Founder & CEO

I want to tell you a story. It is not about magic beans or fairy tales, but about two simple portfolios. One sounds safe, the other sounds completely unhinged. Yet when The Motley Fool ran an experiment a couple years ago, half their paying subscribers, people who pride themselves on being sharp investors, chose the safe one. That blew my mind then and it still does today.

Here’s what they showed people. Portfolio A had 2 stocks, both rising 70%. Simple math that turns $100 into $170. Smooth sailing, nothing flashy. Portfolio B also had 2 stocks, but one crashed to zero while the other exploded 1,000%. That same $100 loses $50 on one side and grows to $500 on the other. The final result is $500, far better than $170. Every logical metric points to Portfolio B as the winner, yet nearly half the respondents still chose the safe, quiet route.

If you’re thinking “Carl, people don’t understand math.” That’s not it, they do. The real issue is they don’t like how the numbers feel. That’s the point. For 22 years I’ve watched investors, and myself, fall into the same trap. We care more about the road than the destination. We want every mile marker to sit higher than the last, with no potholes or detours. We want the sausage to look perfect while it is being made, not just taste great at the end.

Psychologists call it negativity bias. A 30% drop feels 10x worse than a 30% gain feels good. Humans absolutely hate feeling bad. I’ve sat across desks from clients who literally lost sleep over a single red day. They would ask, “Is NVIDIA done?” Are the geniuses at the top suddenly idiots? Never mind the fact that the same stock, bought 10 years ago for $10,000, is now worth $2.4 million. Like a rocket ship, it wobbles and it stalls sometimes, but it’s still pointed up. Yet the moment it dipped 30% one year or 50% another year, people bailed because the ride felt too wild.

Meanwhile, what were they running toward? Bonds. Cash. Commodities. Real estate. Stuff that sounds responsible. To be blunt, bond portfolios are total snoozers. The same $10,000, after 10 years, lands at $12,000. Yawn. Not evil, just sleepy. The stock market is not only risky, it is the only place your money wakes up.

Here’s where things get ugly. Advisors, myself included on weaker days, start listening. Those freaked out voices get loud. “Smooth it out,” they demand. Diversify. So what happens? We sell the rocket ship to buy the glider. That’s been referred to as “di-worsification.” Not diversification. You’re not spreading risk, you’re diluting upside because you can’t stand watching the dial twitch. The truth is that the market doesn’t owe you consistency. It rises about 75%¹ of the time. The other 25% is the price of admission. If you are not willing to ride that out, you’re in the wrong vehicle. Park the money in a CD or in an annuity. I know some planners cringe at the “A” word. Think of it like driving slower. It costs you time in reaching your destination, but if the bumps make you queasy, maybe the trade off is worth it.

If you are the kind of person who can look at Portfolio B and think, “I get it, one 0 and one 1000%, I would still take that ride,” then congratulations. You understand investing. You understand that growth comes from chaos, not comfort. David Gardner just released a book titled Rule Breaker Investing. I am placing it in my top 3 without hesitation. He tears apart all the fake rules. Sell when it doubles. Spread it everywhere. Bonds for safety. No. Absolutely not.

Real diversification means you pick a handful of powerhouse companies, equal bets, all chasing stock like returns. Then you diversify the rest of your portfolio into low cost stock index funds. You do not stuff half your money into sleepy assets just because the noise makes you nervous. You are not protecting yourself from loss. You are protecting yourself from boredom.

Here is the thing. 60% of Americans now have money in the markets², an all time high. That means a lot of people are about to experience exponential growth in a real way. It also means a small, very loud group is about to panic. When that happens, they will blame you, blame me, blame the market, blame gravity, blame anything except the fact that they forgot markets move up and down.

Here’s what I’ve learned. Pain is contagious. When you have pain you have 3 choices.

1. You can deal with it by taking a hard look in the mirror and owning your actions.
2. You can recycle it by whining to everyone about how unlucky you are.
3. You can transmit it by convincing others that real investing is doomed to fail.

That last one spreads like a virus. “My advisor put me in NVIDIA, see, it is crashing.” Never mind they bought it after a 90% run up. Never mind they never learned that volatility is baked into the recipe. That is the trap.

Here is my holiday gift to you. Go get Rule Breaker Investing by David Gardner. Read it then read it again. Think about which portfolio you would pick if no one were watching. If it is the wild one, and you can handle the wobble, then let’s keep it that way. If it is the safe one, that’s fine too. We will find you the glider. Just make sure fear does not become di-worsification for everyone else.

We are going to spend the next year walking clients through all of this, not to scare anyone or to hold their hand, but to show them that growth is not a luxury. It is a necessity. It is math, and math doesn’t care how nervous you felt along the way. This isn’t about following rules. It is about understanding reality. So the question is simple. Are we ready to break a few rules together?

¹ Source: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

² Source: https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx#:~:text=Editor’s%20Note:%20This%20article%20was,Economy%20and%20Personal%20Finance%20survey.