WHAT IS LOSS AVERSION?
Loss aversion is a bias that’s often felt when individuals make investment decisions
based on perceived gains instead of perceived losses. Basically, it’s the idea of
avoiding any potential risk that could cause money loss.
Loss aversion is a tendency all humans share, because let’s face it, no one likes to lose
money. We can’t, however, avoid potential loss altogether. Why? Because favouring
perceived gains over losses can consequently have probable negative impacts. Sure,
you might not be losing money when avoiding the risk of loss, but you’re losing
opportunities for potentially greater gains. If you’re always investing in a safe option,
you could risk the opportunity to be growing your portfolio with an investment that’s
a little riskier.
FLM'2017 | 9