Discuss the potential risks of overconfident investors

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Reference no: EM131638319

In a report (no more than 500 words exclusively) discuss the potential risks of overconfident investors overestimating future returns. Evaluate the possible downside losses in each case.

Risk aversion can be influenced by many factors, one being an individual's life experiences. Many younger investors have never seen a serious economic recession. To them, the stock market may seem like "easy money." The conservative, risk-averse investors that lived through the great depression are being replaced with more freewheeling, younger, more optimistic investors. Perhaps this optimism is part of the reason the stock market has flourished for so long, as consumer confidence has remained high and investors have continued to place money in the market. But overconfidence has a price. As you begin to develop your lifetime financial plans, make sure to do some what-if analysis, and don't be fixated on high returns that may not last. Hope for the best, but plan for the worst.

Reference no: EM131638319

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