The Investment Trilemma

I recently had a thought regarding how we approach investment. It’s based on the simple idea that there are 3 general goals we wish to achieve — high return, low risk, and in a short time. Yet, there is no free lunch in the world, and we can only achieve, at best, two.

Of course there are exceptions, and the whole purpose of the expertful investment industry is to supposedly overcome those limitations, for which we compensate them in fees, but in general, I would say that fundamentally and ultimately, one may only achieve at most two out of the three goals.

For instance, if one wants high returns in a short time, they must be willing to incur high risk. If one wants low risk and high returns, they must be willing to wait a long time, such as investing in a market index and holding it. Finally, if one wants low risk but only has a short time, then they would likely only receive a low return.

I would term this the “investment trilemma", a simple heuristic to help people navigate financial products, to be cautious and critical of claims. (Of course, I’m pretty sure that others have come up with similar ideas, so I do not claim that this is wholly original.)