Coping with Market Volatility: Understand How Your Biases Can Affect Investment DecisionsSubmitted by Wealth Strategies Financial Group on May 7th, 2020
Loss-aversion bias describes the tendency to fear losses more than celebrate equivalent gains. For example, you may experience joy at the thought of finding yourself $5,000 richer, but the thought of losing
$5,000 might provoke a far greater fear. Loss aversion could cause you to hold on to a losing investment too long, with the fear of turning a paper loss into a real loss. In a down market, of course, most of your investments may show paper losses, so you might consider whether you are holding on to an investment that would be wise to sell within the context of your overall strategy.
It's only natural to be concerned when the market drops. But expecting volatility and having a sound financial strategy in place may be the best defense when events roil the markets. This might also help
prevent you from making investment decisions influenced by biases.
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
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