Climb with Conviction: How to Manage Investment Risk Like a Pro

What Rock Climbing Can Teach Us About Investing

Most investors begin their journey with one burning question: How do I get the highest return for my comfort zone? That’s the framing used by popular risk questionnaires—and it is an excellent way to introduce what we call volatility risk, or how much fluctuation in value you can emotionally and financially tolerate.

But that’s only part of the picture.

At Personal Finance Reimagined (PFR), we teach a deeper approach. Our framework—the Investment Barbell Strategy (IBS)—helps new and experienced investors build long-term wealth while staying grounded in three core risk dimensions: volatility, diversification, and time.

To bring this to life, we use a metaphor from rock climbing: the points of contact concept.

The Climber’s Edge: 3 Points of Contact

In rock climbing, successful risk management hinges on maintaining three stable points of contact—typically two feet and one hand—while the fourth limb reaches for progress. Experienced climbers understand that at times, they will inevitably drop below three points of contact. This is not a failure; it is a calculated risk. They accept temporary instability only when their other anchors are secure and the potential gain justifies the move. These decisions are not based on formulas but shaped by instinct, honed through years of practice, and supported by the protective rope system. The key is not avoiding risk entirely, but managing it with awareness, preparation, and confidence in their process.

Investing has a similar risk mindset approach. Your “points of contact” are:

• Volatility – Market fluctuations that affect value

• Diversification – Breadth of your investment exposure

• Time – The holding period before you need the money

Your goal is not to avoid risk—it is to choose which risk you’re reaching for, while staying grounded with the others.

This metaphor helps investors think not just about how risky something is, but what kind of risk they’re taking on—and what’s supporting them.

The Four Investment Quadrants of IBS

The Investment Barbell Strategy is built on four distinct quadrants, each exposing the investor to one key risk feature while being supported by the others. As with climbing, sometimes, exposure to more risk features makes sense in the context of the IBS strategy. This approach enables diversification of risk type—not just of asset class.

Quadrant 1: Cash- Low volatility, very diversified, and shorter time- Represented by high-yield savings, CDs, or FDIC-insured bank accounts- Ideal for emergency funds and short-term opportunities. Quadrant 1 exposes the investor to lower returns associated with a shorter time period.

Quadrant 2: Robo- High volatility, very diversified, long time- Represented by robo-advisors and diversified ETFs- Designed to weather volatility through long-term compounding. Quadrant 2 exposes the investor to higher volatility associated with well-diversified but high-growth funds.

Quadrant 3: Real- Low volatility, low diversification, long time- Represented by real estate, REITs, and property funds- Offers long-term appreciation and capital access via equity. Quadrant 3 exposes the investor to lower diversification associated with individual properties like your primary home.

Quadrant 4: Fun- High volatility, low diversification, short time- Represented by niche ETFs, early-stage ventures, or speculative assets- High upside—but also high emotional and financial risk. Quadrant 4 exposes the investor to multiple risk features. This is managed by limiting the investors' exposure to a fixed proportion of their wealth.

Risk Tolerance Survey: Before and After the Climb

Before beginning our IBS seminar, we ask students and clients to take the Wealthfront Risk Questionnaire. This provides a numerical volatility risk score between 1 and 10. We chose Wealthfront's risk questionnaire because it is simple and effective, but other behavioral risk assessment tools could be used.

Instructions:

1. Visit the online quiz

2. Enter income of $50,000–$75,000 (or your actual amount)

3. Enter “up to $50,000” for assets (or your real asset numbers)

4. Answer the two behavioral questions honestly

5. Submit and record your Risk Level (1–10)

6. Enter your result

Why do we do this? Because education influences behavior. After understanding the full context of risk—across volatility, diversification, and time—we ask participants to take the survey again.

It is remarkable how quickly risk tolerance evolves when investors learn how risk actually works. The shift is almost always upward.

This graphic demonstrates the measurable impact of investment risk education. The data, collected from 78 students immediately before and after an Investment Barbell Strategy seminar, are plotted as cumulative density functions (CDFs). These curves reveal how students' self-assessed willingness to accept volatility risk shifted after gaining a deeper understanding of how risk is mitigated through diversification and time horizon.

The weighted average risk score increased from 7.7 to 8.1, indicating a meaningful rightward shift in perceived risk tolerance. But the CDF format offers more than just a shift in averages—it reveals where and how perspectives changed across the full risk spectrum.

• On the lower-risk end, a small but visible gap between the lines reflects modest increases in confidence among more risk-averse students. These students began to see that longer time frames and broad diversification reduce the downside of volatility.

• On the moderate-to-higher risk end, a larger separation in the CDFs indicates that students already comfortable with risk became even more confident. Education empowered them to lean further into volatility, particularly when it is framed as a temporary feature of otherwise resilient, diversified portfolios.

As an investment educator and architect of the IBS framework, I use this kind of feedback loop to demonstrate not just theoretical knowledge, but how structured decision-making frameworks influence real investor behavior. The CDF analysis provides statistical validation of what we see intuitively: education shifts perspective, and with it, investment behavior.

Behavioral Finance Meets Barbell Strategy

Understanding risk is only part of the story. Managing it consistently is the behavioral challenge.

That’s why the IBS is paired with the M-T-P framework, which acts as an investor’s behavioral anchor:

Motivation Grounding- Be content with what you have- Avoid status-driven purchases- Focus on real goals, not social comparison.

The Motivation grounding headline – LIVE BELOW YOUR MEANS

Time Frame Setting- Think in decades, not quarters- Recognize compounding requires patience.

Time frame setting headline – your financial decisions should be grounded at least 10 years into the future.

Process Implementing- Save → Invest → Evaluate → Rebalance → Repeat

The Process implementing headline – aggressively follow the best decision process. Use automations AS MUCH AS POSSIBLE to enforce this process.

These behavioral guardrails help you stick to your strategy—even during downturns. Just like climbers train their reflexes, investors train discipline. The IBS encourages investors to expose themselves to significant volatility risk in the context of the long time frames and high diversification associated with the Robo Quadrant. However, if a sell-off is likely to cause great agita, then it is not worth it. Life is too short. We encourage investors to be true to themselves... not to some volatility absorbing ideal. Also, over time, investors generally become more able to manage their emotions via the experience of discovering that volatility is ok. Updating over time works.

Helping investors manage their emotions in down cycles is where investment advisors shine. They stay focused on the game plan and volatility's upside. In this situation, investment advisors are quite literally worth their weight in gold!

Investing with Purpose, Not Perfection

Many new investors worry about “doing it wrong.” But as we emphasize throughout IBS training, progress beats perfection. Markets are noisy. Strategies evolve. Life happens.

The best investors do not avoid risk—they manage it. They do not seek perfection—they seek a system they can live with.

That is why we recommend periodic health checks, where you:

• Reassess risk tolerance (especially after market cycles)

• Review allocations across the four quadrants

• Adjust with intention, not emotion.

Diversification: The Unsung Hero of Stability

Diversification spreads risk across multiple assets or sectors. This concept is central to the Robo quadrant, where highly diversified ETF portfolios are built to weather market swings. Diversification does not eliminate risk, but it prevents catastrophic losses tied to any one investment. In the long game, the essential element of success is not getting knocked out of the game. And diversification keeps the investor in the game.

The Real and Fun quadrants, by contrast, lack diversification. Real estate may be concentrated in a single geographic region, while speculative investments often hinge on a specific trend or technology. That’s why the Fun quadrant is limited to a smaller portion of your portfolio. Managing diversification is like ensuring you have multiple footholds in place before reaching upward.

Commitment Devices and the Role of Automation

Behavioral finance shows us that good intentions often falter without systems. That’s where commitment devices come in. Auto-transfers into robo-advisors or retirement accounts are powerful tools to enforce consistent investing behavior.

We encourage investors to set up automatic contributions, especially into their Robo quadrant portfolios. This not only removes the temptation to time the market but also takes advantage of dollar-cost averaging. Just like a climber plans their next hold before making a move, investors should lock in their next financial steps to reduce hesitation and second-guessing.

A Note on Rebalancing and Portfolio Maintenance

No strategy is set-it-and-forget-it. The IBS encourages periodic rebalancing to stay within target allocations. This means trimming positions that have grown beyond their quadrant’s target range and reinforcing areas that have become underweight.

For example, if the Fun quadrant exceeds 20% of your portfolio due to a surge in a speculative ETF or investment, it is time to reduce exposure and reallocate to Robo or Cash. This process not only preserves your strategy—it locks in gains and redistributes risk across your stable contact points. Think of rebalancing as adjusting your grip during the climb to maintain balance and control. Because the Fun quadrant tends to be volatile - such as the ups and downs of the crypto market - rebalancing with stop-loss-based selling when your Fun quadrant exceeds the ceiling is a necessary tactic. This is a great way to appropriately reduce exposure and maintain the return-generating potential of the Fun quadrant.

Adapting the Strategy Across Life Stages

IBS is flexible. Younger investors may find themselves overweight in Real due to a recent home purchase, while retirees may prefer a larger Cash allocation for liquidity and reduced volatility.

The key is intentionality. Life events, job changes, economic cycles, and family needs all influence the ideal allocation. By using the IBS as a guiding framework, investors can confidently make adjustments that reflect their evolving financial lives. Just as a climber chooses different routes for different terrains, investors must tailor their path based on where they are and where they’re headed.

Final Thought: From Risk Awareness to Risk Confidence

IBS does more than allocate capital—it builds financial confidence. By understanding where you are grounded and where you are reaching, you’re better prepared to navigate uncertainty. The difference between panic and poise is process.

We believe that when students and clients understand the full spectrum of risk—volatility, diversification, and time—they stop fearing it. Instead, they learn to use it. That’s what IBS delivers: not fearlessness, but fluency.

You do not climb because it is safe—you climb because you’re prepared. With the Barbell Strategy, you’re not just investing. You’re scaling smart.

Clarifying Key Risk Concepts: Diversification and Volatility

Diversification and volatility are often misunderstood terms, yet they are central to understanding risk in the Investment Barbell Strategy.

Diversification: The degree to which an investment component (like a company) can impact the overall value of an investment. A highly diversified portfolio minimizes the effect any single investment component can have on total returns.

Volatility: The degree to which an investment varies above or below the average value of that investment. Volatility is not inherently bad—over time, it can provide opportunities to enhance returns if managed wisely.

Can You Be a Long-Term Diversifier? Attitudes to Optimize Convexity and Long-Term Diversification

Let us consider a few critical 'what if' scenarios that illustrate the behavioral side of investing:

• You are in a well-diversified portfolio 

• Your portfolio is regularly rebalanced 

• Suddenly, your portfolio takes a large drop 

• Your wealth drops from $50,000 to $35,000

Would you:

- Freak out, feel nauseous, and look to sell your holdings?!

Or would you:

- Be calm and then happy? After all, you can now buy more at a 40% off sale. You have excess liquidity available for such an opportunity.

This is not just theory. It is a mindset that aligns with a long-term, process-oriented view of volatility and diversification. Investors who embrace this attitude are not immune to losses, but they are less likely to sabotage their future wealth due to short-term emotion.

As Richard Thaler, University of Chicago Economist and Nobel Laureate, puts it:  “There is growing evidence that most people would be better off not paying attention to the ebbs and flows of the stock market.”

By embracing volatility within a diversified framework, and rebalancing strategically, investors can turn fear into advantage. This is the essence of convexity in long-term investing: you benefit more from volatility than you suffer from it.

Conclusion: Confidence Is the Real Climb

The most confident climbers are not the strongest—they’re the ones who trust their system. They know where they are anchored. They know where they’re reaching. And they respect the terrain.

The Investment Barbell Strategy offers that same clarity.

You do not need to predict the market. You do not need to master every asset class. You simply need to:

• Understand the three points of contact

• Choose your risk exposure deliberately

• Rebalance over time with confidence

Risk is the path. Process is the rope. Time is your harness. With the right tools and mindset, you’ve got this.

Resources for the Curious

To access the investment decision technology, please see:  Hulett, Jeff. Making Choices, Making Money: Your Guide to Making Confident Financial Decisions. Personal Finance Reimagined Press, 2022.

Hulett, Jeff. “The Investment Barbell Strategy.” The Curiosity Vine, Jan 1, 2022. Updated Dec 1, 2024.

Hulett, Jeff. “Managing Risk and Avoiding Ruin: The Ergodicity View.” The Curiosity Vine, 2020.

Hulett, Jeff. “Zoom Out! A Time-Tested Approach for Investing in Challenging Markets.” The Curiosity Vine, 2021.

Hulett, Jeff. “Budgeting Like a Stoic.” The Curiosity Vine, 2021.

Hulett, Jeff. “Homeownership Is an Important Wealth-Building Platform.” The Curiosity Vine, 2022.

Bennett, Paul. The Money Navigator: The Essential Guide to Living Your Ideal Financial Life. Greenleaf Book Group Press, 2017.

Thaler, Richard H., and Cass R. Sunstein. Nudge: Improving Decisions About Health, Wealth, and Happiness. Penguin Books, 2009.

Taleb, Nassim Nicholas. Antifragile: Things That Gain from Disorder. Random House, 2012.

Bernstein, Peter L. Against the Gods: The Remarkable Story of Risk. Wiley, 1996.

Thaler, Richard H. Misbehaving: The Making of Behavioral Economics. W. W. Norton & Company, 2015.

Bogle, John C. The Little Book of Common Sense Investing. Wiley, 2007.

Kahneman, Daniel. Thinking, Fast and Slow. Farrar, Straus and Giroux, 2011.

Malkiel, Burton G. A Random Walk Down Wall Street. W. W. Norton & Company, 1973. Updated 2023.

Robbins, Tony. Unshakeable: Your Financial Freedom Playbook. Simon & Schuster, 2017.

Buffett, Warren. “Do not test the depth of the river with both your feet.” Quoted in multiple annual shareholder letters.