BY Darren Munn, CFA
I recently came across a couple news items that highlight a common issue – most people in society have a false perception of risk which causes us to behave in ways that are actually riskier.
For instance, it is safer to fly than drive, yet many people are afraid of flying and choose driving over flying.
“The chance of a passenger dying on any given flight with one of the world’s major airlines is just 1 in 4.7 million. The chance of dying in a traffic accident, however, is 1 in 14,000. (The Week – April 11, 2015)
Many people are also afraid of sharks and refuse to swim in the ocean, yet it is safer than taking a selfie.
“A 66-year-old Japanese tourist recently died after falling down stairs while attempting to take a selfie at the Taj Mahal. The incident raises they selfie-related death toll this year to 12. To put that in perspective, there have been just six fatal shark attacks so far this year. (Mashable – September 21, 2015)
We see similar behaviors when it comes to investing. Many investors, by seeking to avoid risk, actually take on greater risk and put themselves in harm’s way. Trying to avoid volatility often leads to investors failing to meet their objectives.
Darren Munn
A291