…is what I said when I pulled up the controversial dress that the world seems to be divided on today. I heard about this debate first thing in the morning on my way to the gym and thought it was a hoax… so when I came across the photo in this Globe & Mail article, I humored myself and asked my amazing associate Noushin to tell me what colour the dress on my screen was…. she looked at it and simply said, “it’s white and gold”.

 

Whaaaaaat?

 

So, I right clicked the image to print it and a blue & black dress came out the other end. She was mesmerized and I too was baffled by the fact that what seemed so obviously blue and black to me was perceived as white and gold by someone else looking at the exact same image, on the exact same screen at the exact same time.

 

These sorts of skewed perceptions are happening all the time in the financial world – they just aren’t as pronounced as the dress debacle – yet far more important in my opinion. For example, everyone defines wealth in their own unique way and even more vital to your financial health is the definition of risk.

 

Your risk tolerance as defined by Investopedia is, “the degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important component in investing. An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments. Investors who take on too much risk may panic and sell at the wrong time”.

 

But what does it really mean? For some clients, ‘risky’ is anything outside of fixed income, for others it’s investing in junior mining stocks. That said, just like our divided views of the (obviously) blue & black dress, our personal definition and understanding of risk is what affects our capacity to deal with it. If you are a risk averse person and you do not want to lose any of your principle, principle protected investments like GICs and PPNs may be perfect for you. If however you define risk from a higher planning level as not keeping pace with inflation or not reaching a certain goal, the risk of not earning enough is your perception of risk, regardless of principle protection.

 

Other factors affecting your risk tolerance can be your time horizon, future earning capacity and other supporting assets - in general, the more stable sources of funds available to you, the higher your capacity to take on risk with your investments – but sometimes even with those key factors in place, some investors just can’t stomach volatility – while others keep their focus on the end goal and ignore the day-to-day. Education also plays a large part it risk tolerance – which is why it’s important for me that my clients understand what we are investing in and why.
As investors, you can assess your degree of risk tolerance by taking any number of different risk tolerance questionnaires (those of me who have trusted me with your money recall the 12 page assessment I made you do).

 

So, back to the dress. According to a Buzzfeed quiz, 74% of people think the dress is white and gold, while 26% say it’s blue and black. It’s not exactly a scientific poll, but more than 857,000 people have reportedly voted. A college student in Michigan, Andy Rexford, has become famous overnight by tweeting a likely explanation. Here are the coles notes:

 

o Your eyes have retinas, the things that let you interpret color.
o There's rods, round things, and cones that stick out, which is what gives your eye a textured appearance in the colored part.
o The "rods" see shade, like black, white and grey.
o The "cones" see color.
o There's three cones: small, medium and large. They are blue sensitive, green sensitive, and red sensitive.
o Cones only work when enough light passes through. So while I see the fabric as blue, Noushin sees it as white because her cones aren't responding to the dim lighting (her rods see it as a shade: white)

 

So, the conclusion?

 

If you see blue and black: your retina's cones are higher functioning and you are right.
If you see white and gold: your eyes don't work well in dim light and you are wrong.