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2009Oct23 Are investors accepting or avoiding risk?

 

This week’s poll results measure investor perspectives about their perception of risk. The poll was not scientific and was driven by radio listeners of the syndicated Don Creech Radio Show (www.DonCreech.com) and subscribers to Investor Resources Week In Review email update.
 
When faced with a major financial decision, are you more concerned about the possible losses or the possible gains?
The vast majority of respondents are more concerned about possible losses by a 92 to 8% margin. This is consistent with studies in investor behavior that have found that a loss is much more emotionally painful than a similar gain is emotionally rewarding.
 
What degree of risk have you taken with your financial decisions in the past?
Almost two thirds of respondents have taken what they identified as medium amounts of risk. Fifteen percent of respondents have previously taken large risks. Slightly less than twenty five percent have only been tolerant of small risks. This is anecdotal for me. I think this is consistent with the amount of money that remains in savings institutions that have some sort of government guaranty attached to the deposit.
 
What degree of risk are you currently prepared to take with your financial decisions?
It appears that the recent financial turmoil has negatively impacted the respondents’ willingness to take investment risk. The number of respondents willing to take large risks has reduced by half. The moderate risk takers have fallen slightly to fifty four percent while risk avoidance has increased to almost forty percent of the respondents.
 
Have you ever borrowed money to make an investment (other than for your home)?
Respondents are fairly evenly split with the issue of margin or borrowing for the purpose of investment. Slightly more than half have avoided investment debt.
 
How do you usually feel about your major financial decisions after you make them?
No one ever wants to make a bad decision. Even in Psychology 101 we learned that the normal response to a decision is to justify whatever we have decided to do. It is no surprise that seventy seven percent view their decisions optimistically.
 
How much confidence do you have in your ability to make good financial decisions?
Slightly more than half of respondents remain quite confident in their ability to make good financial decisions. Slightly less than a third are “reasonably confident” about their decision making ability. Only fifteen percent of respondents express only a little confidence in their ability to make good decisions.
 
 
Compared to others, how do you rate your willingness to take financial risks?
It is interesting that the volatility of the markets has not had a material change in the answers we have been given by the respondents to this week’s poll. The statistics are the same as for our question about risks previously taken by our respondents. Almost two thirds of respondents have taken what they identified as medium amounts of risk. Fifteen percent of respondents have previously taken large risks. Slightly less than twenty five percent have only been tolerant of small risks.