Should I Invest to Maximize Returns at All Costs?

While we all want to maximize returns, this can only be done by through high risk investments. This may be an appropriate strategy for some, but most of us cannot afford to put our assets at risk in order to maximize returns at all costs. Furthermore, Investing solely for maximum returns can lead to overlooking important factors such as diversification, financial goals, fees, taxes, and even your mental and psychical health.

Idealy you always consider your goals and risk tolerance when making investment decisions. For example, if you’re in your 50’s and your goals include purchasing a home, saving for your kids education, preserving your capital, and sleeping well at night then investing for maximum returns would be incredibly irresponsible. In this situation you can’t risk going bust! Investing in some lower risk bonds and focusing on sufficient diversification would be a more appropriate strategy.

Generally, if you prioritize asset protection and you prefer more stable and predictable returns on your investments, investing in low-risk assets like bonds and defensive stocks are usually the best option. This strategy helps to avoid the stress and anxiety that can come with volatile market fluctuations and can provide a more consistent stream of income.

On the other hand if you are very young, have no dependents, super low expenses, and your goal is to maximize growth at all costs then you can afford to take some risks if you’d like. In this case you still have a long career ahead of you to make up for potential losses. You also don’t have dependents who rely on your assets, so if your investments are a bust you’ll have plenty of time to make up for it. You can potentially afford to put a large percentage of your wealth into just a few stocks and/or alternative investments. Just be aware that you may need to start over from zero if your investments may not go as planned.

When investing to maximize returns it’s also very important to consider the impact of fees and taxes on your investment returns. Maximizing returns often leads to high fees and taxes, which can drastically reduce your net returns. If you’re in a high tax bracket then you need to pay very close attention to the taxes on your investment gains and losses and the time frame that you hold the investments for.

Finding balance is imperative. If you invest too conservatively then your wealth will slowly be eroded away by inflation. On the other hand, if you go too aggressive you risk rapidly losing wealth while also increasing stress and anxiety. Investing is personal, and it’s best to work with a financial planner who can help you find the right balance for you and your family.

In summary investing solely to maximize returns at all costs is rarely an appropriate strategy. A balanced approach that takes into account your goals, risk tolerance, and other important factors such as fees, taxes, and inflation is wise. You don’t want to risk losing everything, but you also don’t want your assets getting eroded away by inflation because you’re invested too conservatively. It's important to consult with a good financial advisor and conduct thorough research before making any investment decisions.