Image Credit: Alex Nabaum
By Jason Zweig | Sept. 6, 2019 11:02 am ET
If I ask you in a questionnaire whether you are afraid of snakes, you might say no. If I throw a live snake in your lap and then ask if you’re afraid of snakes, you’ll probably say yes—if you ever talk to me again.
Investing is like that: On a bland, hypothetical quiz, it’s easy to say you’d buy more stocks if the market fell 10%, 20% or more. In a real market crash, it’s a lot harder to step up and buy when every stock price is turning blood-red, pundits are shrieking about Armageddon and your family is begging you not to throw more money into the flames. Then risk is no longer a notion; it’s an emotion.
That is why you, and your financial adviser, should be wary of risk-tolerance questionnaires meant to figure out how much money you will need when, and how willing and able you are to withstand losses along the way.…
To read the rest of the column:
https://www.wsj.com/articles/knowing-if-you-can-stomach-the-next-big-market-swing-11567782137
For further reading:
Books:
Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk
Benjamin Graham, The Intelligent Investor
Jason Zweig, The Devil’s Financial Dictionary
Jason Zweig, Your Money and Your Brain
Jason Zweig, The Little Book of Safe Money
Articles and other resources:
“The Art and Science of Knowing What You Own“: a look at the underlying drivers of risk and return across assets.
“The Virtuous Investor: Rule 3“: how the risks people run are a function of their own life stories and the collective experience of their generation.
“Risk as Feelings“: a brilliant academic survey of the ways in which emotions color the human response to risk.
When the Stock Market Plunges…Will You Be Brave or Will You Cave?
‘Shallow Risk’ and ‘Deep Risk’ Are No Walk in the Woods