Reflect
The biggest mistake investors make can typically be attributed to how our brains are wired and what information we are exposed to. When it comes to psychological aspects of risk, there are many factors at play that make us more or less tolerant to volatility in the market. The majority of influencing factors are focused on fears about what losses we could incur. Some of these factors include: economic trends, political viewpoints, commentary from market pundits, overall financial stress, etc.
As an investor, it's important to not be over-confident about how the markets will change, seek out information confirming our viewpoints that may not be factual and be unaware of market trends or ignorant of historical data.
Engage
In this activity, we ask that you watch the video, fill out the left side of your risk assessment questionnaire and then respond with your results. Note: Please fill out a separate risk assessment questionnaire for each of your goals.
In the comments, we encourage our members to share their results from their own risk assessment questionnaire as well as consider these two questions:
- Has there been a time that you remember reacting to a sudden market drop? Did you reduce your exposure to stocks/funds, leave your portfolio as it was, or increase your exposure to stocks/funds? Please share the year this drop occurred and how you reacted.
- Has your reaction to downward trends changed over the years? Do you remember how you typically reacted when you first began investing?
Example:
- Yes, most recently was the sudden market drop about a month ago. At first, I wanted to reduce my exposure; however, I ended up weathering the downward trend and left my portfolio alone.
- Yes, when I first began investing a few years ago, I was slow to invest because I was nervous if I was getting in at the right time and was too conservative with my allocations. Now, I feel more confident about taking risk and leaving my long-term investments alone even when I see red down arrows across my portfolio dashboard.
LINK TO THE RISK ASSESSMENT QUESTIONNAIRE WORKSHEET
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Jenna Brashear
AAII Community Manager
Chicago, IL
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