The above acronym, as weird as it sounds, means in fact something very simple.
LRLR = Low Risk, Low Reward
HRHR = High Risk, High Reward
Needless to say, both represent strategies. The surprising part is that they’re not necessarily investment strategies, but overall strategies. Let me explain.
For simplicity, we’ll start with the investment part, then we’ll move to the broader definition.
LRLR are long term, very safe placements. Bonds, real estate, everything that is considered relatively safe, and with relatively low return (but very predictable).
HRHR are short term, speculative, risky placements, that have a higher risk of going south, but a potentially huge return. Think about company shares like Tesla, or weird crypto bets like Dogecoin.
A balanced portfolio should contain both LRLR and HRHR placements. The proportion is another story, but suffice to say it depends a lot of the amount of capital, the markets and the overall target (is the portfolio for building positions, or is for retirement?).
Now, think abut LRLR as a 9 to 5 job. It’s not spectacular, doesn’t pay fabulously, but it’s safe, and predictable. At the opposite side of the spectrum, as an HRHR example, sits entrepreneurship. It’s the risk of starting your own business, unsafe, but with the potential of hitting the big jackpot.
Extrapolating, you can port this model to relationships too. LRLR would be that friendship that doesn’t necessarily awakens the butterflies in your stomach, but it’s there long term. At the other side of the spectrum is the “soul mate” flavored relationship that may or may not work, but it surely has a lot of sparkle.
In terms of lifestyle, LRLR would mean, for instance, renting cheap, in a not very spectacular location, in a moderately developed country, but with low crime, stable economy and nice social interactions (not many of these left, but there are still a few). HRHR would mean trying out the flashy lifestyle by jumping in to a huge mortgage, owning a big car, in a very developed country, but carrying the risk of enslaving yourself for life for that luxury.
The balance between these models is fundamental for a fulfilling life. Constantly managing the risk and reward in any area of our lives may seem like a chore, but it pays out, in time. Not to mention that you can learn to do it better, the more you do it.
In my experience, HRHR should be tried out only when it affects less than 20% of the portfolio. And by portfolio I mean anything. If it’s capital, that’s obvious, it’s money. But if it’s lifestyle, 20% would mean only a part of what you pay, like, for instance, renting a bit higher but in a place with a nice view. You risk only a little part of the entire portfolio, and you can adjust rapidly by moving to a cheaper area. In relationships it’s a bit difficult to evaluate what 20% means, but for me it works if I think in terms of time. Should I really dedicate my entire time to this relationship? Should I really jump the gun and enter full time? I used to do it when I was younger, but now I am slower. I first try and see if there’s at least some potential for friendship, and live with the risk of losing the butterflies in the stomach until I find out.
Oh, and if you wonder, my 365 days challenge in which I publish an article every day (like the one you just read) falls into HRHR, but on a LRLR dominant portfolio. It means it has a high risk (of not actually generating viral traffic, or other significant monetization results, which is why I don’t even expect that), a high reward (if it does take off, this type of breakthrough has a very big inertia, it may last for years), but it consumes way less than 20% of my daily time portfolio, probably less than 5%, which is about 20-30 minutes every day.
Photo by Graphic Node on Unsplash
Initially published on my blog.
