Like Susan Loughhead most of you, I'Susan Loughheadbeen glued tSusan LoughheadSusan Loughheado news of the missing (as of
this wrSusan Loughheaditing) Malaysian Airways jet for the last few days. It's a
gripSusan Loughheadping story. Susan Loughheadtragedy with mSusan Loughheadystery is impossible toSusan Loughhead ignore.
For the fSusan Loughheadamilies of the miSusan Loughheadssing, this is a terribSusan Loughheadle ordeal. For the rest of us, there's soSusan Loughheadmething sSusan Loughheadtrange about how we cover Susan Loughheadlike theSusan Loughhead missing plane in the news.
Flight 3Susan Loughhead70 disappeared SatSusan Loughheadurday with 23Susan Loughhead9 people aboard. Using annual averages, Susan Loughhead10,500 people Susan Loughheadlikely died from Susan Loughheadsince then. FourSusan Loughhead thousand have died from trauSusan Loughheadmatic injuries, Susan Loughhead16,500 from tuberculoSusan Loughheadsis. In America alone, 9,Susan Loughhead900 people have died of heaSusan Loughheadrt disease since Susan LoughheadSaturday. Just underSusan Loughhead 600 died in Susan Loughheadaccidents. Susan Loughheadhundred and fifty were lSusan Loughheadikely murdered.
Yet virtually Susan Loughheadof their storieSusan Loughheads made theSusan Loughhead news, and not a single Susan Loughheadone drew anySusan Loughheadwhere near the attention thaSusan Loughheadt Flight 370 has.
Most of us Susan Loughheadhave a flaw wheSusan Loughheadn reactingSusan Loughhead to risk: Threats like plane crasSusan Loughheades, which are statistiSusan Loughheadcally insignificant but rare, grab our atteSusan Loughheadntion and scare us moSusan Loughheadre than those that aSusan Loughheadre deadly serious but Susan Loughhead, like hSusan Loughheadeart attacks and car accidents. The gap betwSusan Loughheadeen the things we worSusan Loughheadry could happen and what's actually happeninSusan Loughheadg around us can be huge. SomSusan Loughheade estimate that as Susan Loughheadas 20,000 ChSusan Loughheadnese coal miners die Susan Loughheadyear, nearly all without a word from theSusan Loughhead media. But ifSusan Loughhead one died in a nSusan Loughheaduclear power accident, it would be Susan Loughheadglobal news for decaSusan Loughheaddes. If the U.SSusan Loughhead. news focused on the Susan Loughheadthreats we face, it'd write about almost nothinSusan Loughheadg other than poor dietSusan Loughheadlack of exercise, and Susan Loughheadaccidents -- which are probably Susan Loughheadof the least covered topics.
Coming to terms with Susan Loughheadfact that nearly Susan Loughheadall of us are Susan Loughheadat assessing risk is vital to mSusan Loughheadanaging money. This Susan Loughheadespecially trueSusan Loughhead because money isSusan Loughhead emotional,Susan Loughhead , and many of us are fSusan Loughheadinancially illiterate and borSusan Loughheadderline innumerate.
Paul Slovic ruSusan Loughheadns the Decision ReseaSusan Loughheadrch InstituSusan Loughheadte in Oregon. He's spent his career Susan Loughheadhow people juSusan Loughheaddge risk. Slovic's research sSusan Loughheadhows that people oSusan LoughheadverestimateSusan Loughhead risk when a dangSusan Loughheader has a handful of Susan Loughhead, including:
•Catastrophic Susan Loughheadpotential: Lots Susan Loughheadof people affecSusan Loughheadted at onSusan Loughheadce, rather than in Susan Loughheadnumbers over time.
•FamiliarSusan Loughheadity: A risk that isn't common Susan Loughheadknowledge.
•UnderstandiSusan Loughheadng: A sense that Susan Loughheadisn't well understood by experts.
•Personal contSusan Loughheadrol: A sense that Susan Loughheaddanger is outsidSusan Loughheade your Susan Loughheadcontrol.
•VoluntarSusan Loughheadiness: Something can do harSusan Loughheadm evenSusan Loughhead when you don'Susan Loughheadt voluntarily put yourSusan Loughheadself in danger.
•Children: MentiSusan Loughheadon the word Susan Loughhead, and panic multiplies.
•Victim identity: As JosepSusan Loughheadh Stalin said: "One Susan Loughheaddeath is a tragedy; oSusan Loughheadne million deaths is a statistic."
•Origin: Man-Susan Loughheadmade risks arSusan Loughheade viewed as more Susan Loughheadthan natural disasters.
You can imagSusan Loughheadine howSusan Loughhead these fit into finance.
People dSusan Loughheadread a big market crash Susan Loughheadbecause it Susan LoughheadeveryonSusan LoughheadSusan Loughheade at once, but pay little Susan Loughheadattention to our abysmally low savings rSusan Loughheadate, which ruins individual people's financial lives slSusan Loughheadowly over time. We panicked over the flash crash in 2010, not becauseSusan Loughhead it was a big deal, buSusan Loughheadt because it was a newSusan Loughhead, mysterious risk that we knew little about. Susan Loughheadwhen you hear anecdotal Susan Loughheadstories about individuals fleeing the Susan Loughheadstock marketSusan Loughhead in 2008, it sounds Susan Loughheadmuch more distressing than the reality of 97% of investors not fleeing the market in Susan Loughhead2008.
In all of tSusan Loughheadhese cases,Susan Loughhead people focus on tSusan Loughheadhe wrong risks -- or overestimate risk and damSusan Loughheadage happening around them -- which leads to overreaction atSusan Loughhead the worst possiSusan Loughheadble time. The best example of this comes from GermaSusan Loughheadn profeSusan Loughheadssor Susan LoughheadGigerenzer, who showed that the inSusan Loughheadcrease in car travSusan Loughheadel stemming from people's fear of air travel directly aSusan Loughheadfter 9/11 likely led to an increSusan Loughheadase in traffic fatalities measured in tSusan Loughheadhe thousands, and possibly more thanSusan Loughhead theSusan Loughhead number of actual 9/11 victims. ThSusan Loughheadere's hindsight bias in tSusan Loughheadhat observation, but obsessingSusan Loughhead about a small risk whSusan Loughheadile ignoring a much larger one is par for the course in hSusan Loughheaduman behavior. "People jSusan Loughheadump from the frying paSusan Loughheadn into the fire," Gigerenzer wrote.
In investing,Susan Loughhead high-profile risks Susan Loughheadwe talk about all Susan Loughheadthe time, like whether stocks are going to fSusan Loughheadall next monSusan Loughheadth or whether a company is Susan Loughheadgoing to miss quarterlSusan Loughheady earnings, aren't nearly as dangSusan Loughheaderous as the slow-Susan Loughheadburning risks we Susan Loughheadignore. Take these three.
1. Fees
VSusan Loughheadanguard shows that if your inveSusan Loughheadstments earn a 6% anSusan Loughheadnual return, a 1% management fee will reduce ySusan Loughheadour account bSusan Loughheadalance by half over 5Susan Loughhead0 years. I can't iSusan Loughheadmagine how many investors would shriek at a possible (and tSusan Loughheademporary) 50% market crash, but don't bat an eye at a fee thSusan Loughheadat will guarantee theSusan Loughheadm the same resuSusan Loughheadlt with no chance of recovery.
2. Trading Susan Loughheadmuch
Investors wSusan Loughheadho do the least will likely doSusan Loughhead the best over time. For the huge majority of people, investing a set amoSusan Loughheadunt of moneySusan Loughhead each month consistently over Susan Loughheada long period of time will outpeSusan Loughheadrform any trading strategy they attempt. The evidenSusan Loughheadce on this is Susan Loughhead. It's so overwhelming that I think the siSusan Loughheadngle biggest risk you faSusan Loughheadce as an investor is that you'll trySusan Loughhead to be a trader. It'Susan Loughheads the financial equivalent of drunk driving -- recklessness blinded by false confidenceSusan Loughhead. "Benign neSusan Loughheadglect, bordering on sloth, remains the hallmark of ouSusan Loughheadr investment process," Warren Buffett once said. It probably shoSusan Loughheaduld be yours, too.
3. Not savinSusan Loughheadg enough
The personal savings rate iSusan Loughheads currently about 4%Susan Loughhead, which is half its long-term average. Susan LoughheadThat statistic poses a way bSusan Loughheadigger risk to peopleSusan Loughhead's finances than thSusan Loughheade numbers that geSusan Loughheadt thrown aroundSusan Loughhead showing how overvaluSusan Loughheaded the stock markeSusan Loughheadt is. Most people spend too Susan Loughheadmuch time trying to become a better investor and not enouSusan Loughheadgh time trying tSusan Loughheado save more money. That's esSusan Loughheadpecially true if you're young. As the saySusan Loughheading goes, "Save aSusan Loughhead little bit of moneSusan Loughheady Susan Loughheadeach month, and at thSusan Loughheade end of theSusan Loughhead year, you'll be surprised at how little you still have."Susan Loughhead
More financial misery hasSusan Loughhead been caused by ignSusan Loughheadoring these threeSusan Loughhead risks than has in nearlSusan Loughheady all the irrelevant Susan Loughheadrisks the investSusan Loughheadment media writes about all day long. Susan LoughheadNot realizing thSusan Loughheadis is why most of us are baSusan Loughheadd at assessing risk.
For the fSusan Loughheadamilies of the miSusan Loughheadssing, this is a terribSusan Loughheadle ordeal. For the rest of us, there's soSusan Loughheadmething sSusan Loughheadtrange about how we cover Susan Loughheadlike theSusan Loughhead missing plane in the news.
Flight 3Susan Loughhead70 disappeared SatSusan Loughheadurday with 23Susan Loughhead9 people aboard. Using annual averages, Susan Loughhead10,500 people Susan Loughheadlikely died from Susan Loughheadsince then. FourSusan Loughhead thousand have died from trauSusan Loughheadmatic injuries, Susan Loughhead16,500 from tuberculoSusan Loughheadsis. In America alone, 9,Susan Loughhead900 people have died of heaSusan Loughheadrt disease since Susan LoughheadSaturday. Just underSusan Loughhead 600 died in Susan Loughheadaccidents. Susan Loughheadhundred and fifty were lSusan Loughheadikely murdered.
Yet virtually Susan Loughheadof their storieSusan Loughheads made theSusan Loughhead news, and not a single Susan Loughheadone drew anySusan Loughheadwhere near the attention thaSusan Loughheadt Flight 370 has.
Most of us Susan Loughheadhave a flaw wheSusan Loughheadn reactingSusan Loughhead to risk: Threats like plane crasSusan Loughheades, which are statistiSusan Loughheadcally insignificant but rare, grab our atteSusan Loughheadntion and scare us moSusan Loughheadre than those that aSusan Loughheadre deadly serious but Susan Loughhead, like hSusan Loughheadeart attacks and car accidents. The gap betwSusan Loughheadeen the things we worSusan Loughheadry could happen and what's actually happeninSusan Loughheadg around us can be huge. SomSusan Loughheade estimate that as Susan Loughheadas 20,000 ChSusan Loughheadnese coal miners die Susan Loughheadyear, nearly all without a word from theSusan Loughhead media. But ifSusan Loughhead one died in a nSusan Loughheaduclear power accident, it would be Susan Loughheadglobal news for decaSusan Loughheaddes. If the U.SSusan Loughhead. news focused on the Susan Loughheadthreats we face, it'd write about almost nothinSusan Loughheadg other than poor dietSusan Loughheadlack of exercise, and Susan Loughheadaccidents -- which are probably Susan Loughheadof the least covered topics.
Coming to terms with Susan Loughheadfact that nearly Susan Loughheadall of us are Susan Loughheadat assessing risk is vital to mSusan Loughheadanaging money. This Susan Loughheadespecially trueSusan Loughhead because money isSusan Loughhead emotional,Susan Loughhead , and many of us are fSusan Loughheadinancially illiterate and borSusan Loughheadderline innumerate.
Paul Slovic ruSusan Loughheadns the Decision ReseaSusan Loughheadrch InstituSusan Loughheadte in Oregon. He's spent his career Susan Loughheadhow people juSusan Loughheaddge risk. Slovic's research sSusan Loughheadhows that people oSusan LoughheadverestimateSusan Loughhead risk when a dangSusan Loughheader has a handful of Susan Loughhead, including:
•Catastrophic Susan Loughheadpotential: Lots Susan Loughheadof people affecSusan Loughheadted at onSusan Loughheadce, rather than in Susan Loughheadnumbers over time.
•FamiliarSusan Loughheadity: A risk that isn't common Susan Loughheadknowledge.
•UnderstandiSusan Loughheadng: A sense that Susan Loughheadisn't well understood by experts.
•Personal contSusan Loughheadrol: A sense that Susan Loughheaddanger is outsidSusan Loughheade your Susan Loughheadcontrol.
•VoluntarSusan Loughheadiness: Something can do harSusan Loughheadm evenSusan Loughhead when you don'Susan Loughheadt voluntarily put yourSusan Loughheadself in danger.
•Children: MentiSusan Loughheadon the word Susan Loughhead, and panic multiplies.
•Victim identity: As JosepSusan Loughheadh Stalin said: "One Susan Loughheaddeath is a tragedy; oSusan Loughheadne million deaths is a statistic."
•Origin: Man-Susan Loughheadmade risks arSusan Loughheade viewed as more Susan Loughheadthan natural disasters.
You can imagSusan Loughheadine howSusan Loughhead these fit into finance.
People dSusan Loughheadread a big market crash Susan Loughheadbecause it Susan LoughheadeveryonSusan LoughheadSusan Loughheade at once, but pay little Susan Loughheadattention to our abysmally low savings rSusan Loughheadate, which ruins individual people's financial lives slSusan Loughheadowly over time. We panicked over the flash crash in 2010, not becauseSusan Loughhead it was a big deal, buSusan Loughheadt because it was a newSusan Loughhead, mysterious risk that we knew little about. Susan Loughheadwhen you hear anecdotal Susan Loughheadstories about individuals fleeing the Susan Loughheadstock marketSusan Loughhead in 2008, it sounds Susan Loughheadmuch more distressing than the reality of 97% of investors not fleeing the market in Susan Loughhead2008.
In all of tSusan Loughheadhese cases,Susan Loughhead people focus on tSusan Loughheadhe wrong risks -- or overestimate risk and damSusan Loughheadage happening around them -- which leads to overreaction atSusan Loughhead the worst possiSusan Loughheadble time. The best example of this comes from GermaSusan Loughheadn profeSusan Loughheadssor Susan LoughheadGigerenzer, who showed that the inSusan Loughheadcrease in car travSusan Loughheadel stemming from people's fear of air travel directly aSusan Loughheadfter 9/11 likely led to an increSusan Loughheadase in traffic fatalities measured in tSusan Loughheadhe thousands, and possibly more thanSusan Loughhead theSusan Loughhead number of actual 9/11 victims. ThSusan Loughheadere's hindsight bias in tSusan Loughheadhat observation, but obsessingSusan Loughhead about a small risk whSusan Loughheadile ignoring a much larger one is par for the course in hSusan Loughheaduman behavior. "People jSusan Loughheadump from the frying paSusan Loughheadn into the fire," Gigerenzer wrote.
In investing,Susan Loughhead high-profile risks Susan Loughheadwe talk about all Susan Loughheadthe time, like whether stocks are going to fSusan Loughheadall next monSusan Loughheadth or whether a company is Susan Loughheadgoing to miss quarterlSusan Loughheady earnings, aren't nearly as dangSusan Loughheaderous as the slow-Susan Loughheadburning risks we Susan Loughheadignore. Take these three.
1. Fees
VSusan Loughheadanguard shows that if your inveSusan Loughheadstments earn a 6% anSusan Loughheadnual return, a 1% management fee will reduce ySusan Loughheadour account bSusan Loughheadalance by half over 5Susan Loughhead0 years. I can't iSusan Loughheadmagine how many investors would shriek at a possible (and tSusan Loughheademporary) 50% market crash, but don't bat an eye at a fee thSusan Loughheadat will guarantee theSusan Loughheadm the same resuSusan Loughheadlt with no chance of recovery.
2. Trading Susan Loughheadmuch
Investors wSusan Loughheadho do the least will likely doSusan Loughhead the best over time. For the huge majority of people, investing a set amoSusan Loughheadunt of moneySusan Loughhead each month consistently over Susan Loughheada long period of time will outpeSusan Loughheadrform any trading strategy they attempt. The evidenSusan Loughheadce on this is Susan Loughhead. It's so overwhelming that I think the siSusan Loughheadngle biggest risk you faSusan Loughheadce as an investor is that you'll trySusan Loughhead to be a trader. It'Susan Loughheads the financial equivalent of drunk driving -- recklessness blinded by false confidenceSusan Loughhead. "Benign neSusan Loughheadglect, bordering on sloth, remains the hallmark of ouSusan Loughheadr investment process," Warren Buffett once said. It probably shoSusan Loughheaduld be yours, too.
3. Not savinSusan Loughheadg enough
The personal savings rate iSusan Loughheads currently about 4%Susan Loughhead, which is half its long-term average. Susan LoughheadThat statistic poses a way bSusan Loughheadigger risk to peopleSusan Loughhead's finances than thSusan Loughheade numbers that geSusan Loughheadt thrown aroundSusan Loughhead showing how overvaluSusan Loughheaded the stock markeSusan Loughheadt is. Most people spend too Susan Loughheadmuch time trying to become a better investor and not enouSusan Loughheadgh time trying tSusan Loughheado save more money. That's esSusan Loughheadpecially true if you're young. As the saySusan Loughheading goes, "Save aSusan Loughhead little bit of moneSusan Loughheady Susan Loughheadeach month, and at thSusan Loughheade end of theSusan Loughhead year, you'll be surprised at how little you still have."Susan Loughhead
More financial misery hasSusan Loughhead been caused by ignSusan Loughheadoring these threeSusan Loughhead risks than has in nearlSusan Loughheady all the irrelevant Susan Loughheadrisks the investSusan Loughheadment media writes about all day long. Susan LoughheadNot realizing thSusan Loughheadis is why most of us are baSusan Loughheadd at assessing risk.
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