Have You Become Too Risk Averse?
Monday November 24, 2008
With stock markets having suffered for a very long period, you may find you have become too risk averse. When you are under stress for a long period of time, you could easily find yourself misjudging the risks of certain shares. This could mean you start only buying shares that are unlikely to lose money but are also unlikely to make money or that you could start selling shares based on a feeling of risk rather than a realistic assessment of risk. Essentially, if you have reached a point of risk aversion where you are not willing to take any risk at all, you may not be able to benefit from stock markets or investments at the moment.
It is never a good idea to become overconfident when investing in shares, as the history of the stock market has shown time and again that disaster often comes on the back of bubbles bursting due to overconfidence. This does not mean you shouldn't be confident at all, however. Remember, successful trading on stock markets requires assessing risk and trading on reasonable risks, so you must certainly think before you invest, just don't overestimate levels of risk. If you become overly sensitive to losses and can no longer tolerate corrections, you may need to look for stock brokers who have been less affected by the financial crisis and who have continued to correctly identify real levels of risk or else you may need to re-evaluate your ability to trade successfully on stock markets in the current climate.
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