Researchers have discovered some interesting things about investors’ perceptions of risk: 1. Fear of loss is exponential. Anxiety increases with the magnitude of the loss. 2. Happiness over a gain decreases as the size of the gain increases. Gaining your first million means much more than gaining a second million. 3. Risk is not symmetrical. Most of us hate losses much more than we love gains.
How much risk can you afford? Nine out of ten investors, when asked how much risk they are willing to take respond with one version or another of “as little as possible”. That is the way I think, and I’m guessing you think that way too. Let’s face it, losing money is unpleasant. This is why risk avoidance is my number 1 priority in managing