Why is it that risk tolerant investors panic and sell investments when faced with real investment loss? Asks Louis Williams. This is a question that has troubled financial planners for many years and inconsistent behaviours have caused the investment process to breakdown and consequently damage planner-investor relationships. So, how can we help these investors?
Firstly, we may have misperceptions of risk tolerant investors. Their attitudes to risk show that they do not hold negative beliefs towards uncertainty in investment returns, therefore we perceive them to be individuals who will not react negatively when faced with uncertain events. But should we hold such strong beliefs? Risk tolerance is based on the "degree" of uncertainty that an investor can handle, therefore risk tolerant investors are not immune to negative reactions. Whether these are emotional reactions, thoughts or actions, we should avoid holding such high expectations of risk...
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