Loss aversion
A finding from behavioral economics (Kahneman & Tversky, 1979): humans weight losses roughly twice as heavily as equivalent gains. When your portfolio drops 10%, the felt pain is closer to a 20% gain in reverse. This asymmetry is why investors often sell at the bottom, the discomfort of watching the number fall outweighs the rational expectation that it will recover. Awareness alone helps; pre-commitment to a plan helps more.
A $1,000 paper loss "feels like" a missed $2,000 gain, even though both are worth the same on the balance sheet.
Trade-offs
Risk
The chance that an investment loses value, and how much it could lose.
Read →Volatility
How wildly an investment's price moves up and down. High volatility = bigger swings.
Read →Diversification
Spreading money across many different things so no single one can sink you.
Read →Bull & bear market
Long stretches of rising prices (bull) or falling prices (bear). Both end, eventually.
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