In short its down to our risk perception which is something all investors need to understand because it affects us ALL.
Your risk profile is different than your risk perception.
Your risk profile is a combination of your appetite for risk, your need to take risk, and your ability to take risk.
But your perception of risk is very emotional and changes with time, experience, and circumstance and what you hear in the news.
Understanding yourself is the most IMPORTANT part of the investment process. If you don’t understand yourself — your reactions, your personality traits, your biases, your limitations — it doesn’t matter which type of investor you’re supposed to be.
It matters which type of investor you are.
Some investors are constantly plagued by the fear of missing out on huge gains.
Others will be haunted by the fear of being fully invested when markets take a dive.
The ideal is to BALANCE out your future goals with your desire to sleep soundly at night
This is why true risk management is about creating behaviorally aware portfolios, not fancy mathematical risk measurement techniques.
The biggest risk for investors is never a market-moving geopolitical event. The biggest risk for investors is themselves.