Episode #8: Risk Amnesia


The Principle:

Risk amnesia affects even the savviest of investors. As the market continues to climb, people forget the potential for a crash. Brian examines the danger.

(Click the featured times below to jump forward in the episode)

Honest Takes:

[00:10] – Long Bull Markets Cause Risk Amnesia.

  • A recent CNBC article warned against risk amnesia. Apparently, long bull markets can cause investors to become complacent toward their investments, and they forget they can lose money in the stock market. Especially last year, we had so many consistent months of growth that investors began taking on riskier and riskier investments.

[00:54] – Corrections Bring Us Back To Reality. 

  • In February, we experienced what’s called a “market correction.” This dip in the market brought many investors back to reality as they experienced losses due to poorly diversified portfolios. We’d argue corrections can be a good thing. They serve as wake up calls and remind us of the importance of properly allocating our wealth. Think about it. Your spouse probably has to correct you from time to time, and that can lead to a healthier marriage.

[1:27] – Is Time On Your Side?  

  • Risk amnesia leads you to think your investments will continue to grow. However, reality tells us that from time to time, you’re going to experience losses. It’s one thing to take a hit when you have 15 or 20+ years until you retire. However, if you’re in the financial red zone, that five to ten years before retirement, you can’t afford large losses in your portfolio. In 2008, folks saw their portfolios cut in half, and had you been close to retirement age at the time, you would’ve been in trouble. This isn’t to say you should fear the market. Rather, it’s important to find a balance between safe money and assets invested in the market.

Today’s Truth:

Other Virtues:

The host: Brian Bowen – Contact

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