What Is the Best Way to Protect Your Investments?

What Is the Best Way to Protect Your Investments?

While chess pundits may think attack is the best form of defense, is following an attack strategy the best way to protect your investments?

Attack strategy on the chessboard

To answer this question, let’s take a look at the famous 1851 “Immortal Game,” when Adolf Anderssen defeated Lionel Kieseritzky using a particularly aggressive strategy. Analysts of the game point out that almost every one of Anderssen’s moves either directly struck his opponent or prepared Anderssen for a later attack. His audacious sacrifices of his rooks, a bishop, and eventually his queen, set him up to checkmate Kieseritzky with just three minor pieces.

But how far can you take this aggressive “attacking” approach in chess or investing?

Not as far as you might like.

While strong attacking moves can advance your position, they need to be tempered with serious thought. Chess enthusiasts refer to Mikhail Tal’s games. Tal is known for his combinations of daring sacrifices and tactical improvisations. Even though Tal’s aggressive play won him the nickname of “the magician from Riga,” he was only able to hold onto the title of world champion for one year.

While aggressive techniques may win in the short term, can they sustain prolonged success?

Think clearly

In chess and investing, while it pays to focus on winning and to ignore the negative influences around you, you need to strike a balance between aggression and caution. Just as in today’s defensive realm of grandmaster chess it’s not clear that Tal’s approach would work well, so too in investments. Someone may tell you about a deal that caused him to profit, but investing history doesn’t tend to repeat itself. Past performance doesn’t predict future results. Therefore, if you are going to play like an aggressive grandmaster, fight hard and think clearly at the same time.

In finding the balance that works for you, follow these rules:

  • Just because you’re young, don’t make too many high-risk bets on one-in-a-million penny stocks. Focusing on those chancy plays will inhibit your overall investment development.
  • Use tools like mutual funds and index funds to spread out the risk.

For more about being the immortal game, watch this video, which I made with Grandmaster Susan Polgar.


Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial PlannerTM.