Probability mismanagement
‘Wrongly applying small probabilities, adversely affecting decisions’
Significant stock market falls occur infrequently, but because the catalyst is often a major event – an economic crisis or war – they attract a lot of attention and colour clients’ perceptions of the risk of investing in stock markets.
action
Make sure clients have a balanced view of stock market investing:
- For example, since 1996 it has been calculated that the success rate of money invested in the FTSE 100 over any 10 year period is 95%. There were only 6 out of 120 ten year periods since 1996 where clients would have lost money.
- At the same time, clients do need to understand the risks of stock market investment (and in particular sequencing risk).