I recently shared a pot of coffee with my wife of 33 years.  Treasured.  Then went to my office and looked at our stock market portfolio. Depressing.

What happened next shocked and scared the hell out of me!   I felt more intensely depressed and bitter about our portfolio decline than feeling happy about sharing coffee with my wife.  Was I crazy? 

Have you ever had an experience where a material possession or loss meant more to you than a personal relationship with a loved one?

Do you need to visit a psychiatrist?

One explanation why your material loss feels more intense than the joy of a personal love relationship is loss aversion.

Loss aversion is a mental experience whereby the pain of losing $100 feels more intense than the joy of gaining $100.

We have a fear of losing money.  We fear it won’t come back.  We won’t recover it.  Crippling thoughts ensue, i.e.   “I will run out of money and go broke.”  Or “Life is cruel and unfair.”  Or “I am worried and depressed.”

Therefor, your pain and fear feels more intense when you’re losing $10,000 in a “bear market” than the happy feeling gaining $10,000 in a “bull market.”

Loss aversion is one reason some people do not invest in the stock market.  They feel it is too scary and fearful.  Instead, they keep their money in lower risk and rewards investments, i.e. CDs, bank savings accounts.

Don’t visit a psychiatrist.  Complete this quiz and be cured.

 The “loss aversion” barometer quiz.

 1) I am comfortable investing ________________ ($ amount or percentage) in the stock market.  Invest that amount in the stock market.

 2)   I can not afford to lose __________________ ($ amount or percentage).  This is your “loss aversion” barometer.  Put this money in cash or short-term bond funds.

 A traditional portfolio has 60% invested in stocks and 40% in bonds.

Yes, 2022 was a lousy year for the stock and bond market.  But you will be richly rewarded if you have the patience to be a long-term investor and stick to this plan.

A final remedy to stay cured and enjoy your life:

You will have an occasional “loss aversion” moment when your portfolio balance declines.  Do this:

Close your eyes, breathe deeply, acknowledge your pain and then exhale it out.  Now breath in, acknowledge what you can control, i.e. your gratitudes, your health, loved ones, exercise, nature, etc.

Please contact me, Dan Edwards, if you need help overcoming loss aversion or want a second opinion on your investments.  I can be reached at 415 515 7985 or dan@danedwardsinvestments.com