The Sucker Pin
If you don’t know already, I love to play golf, so I apologize again for making so many references to golf. But, after a long weekend of beautiful weather (even though we need rain!), golf is certainly on my mind.
There are lots of golf expressions out there, and in some ways, the sport* has its own language. There are literally hundreds of words and sayings to reference a particular type of shot. Many of them are very not safe for work! One of the tamer examples is called a son-in-law shot: not everything you hoped for, but still okay.
Another fairly common term is “the sucker pin.” This refers to the hole being on a part of the green that is particularly difficult. There is usually trouble on at least three sides (short, long, and left/right), and the placement is meant to entice the player into attempting an overly risky shot. In most cases, proper course management would lead a player into hitting to the “fat” or safe part of the green. You are deemed a “sucker” if you attempt to hit it close, but end up hitting into an area that’s very difficult to play out of. In other words, the risk isn’t worth the reward.
Risk and reward are two very important aspects of investing. Taking too much risk can significantly hinder a person’s ability to retire, but conversely, not taking enough risk may cause someone to have to work longer than planned. Weighing risk vs. reward covers a lot of what we have to do as investors.
I would consider the best performing asset class (large cap US, small cap Europe, bonds, etc.) in a previous calendar year to be somewhat of a sucker pin in the field of investment management. Investing in something just because it performed the best in the past is usually not a sound strategy. If you take a look at one of our favorite charts from Blackrock (below), you will see that there is really no consistency with any one asset class. If you look at Large Cap Growth in 1998 and 1999, that would be a perfect example of what I might call a sucker pin. You were provided with 2 years of the best returns, only to experience the worst returns for the next 3 years.
The white squares show a diversified portfolio and how it performed.
Making a poor shot at a sucker pin in golf likely won’t ruin your retirement plan, but taking too much (or too little) risk in your investment portfolio most certainly could. So, shoot for the fat part of the green, and take the safe route by staying diversified and investing appropriately for your situation.