I live in Santa Barbara Californian and even though we don’t have any fires here, smoke from some of the 500-plus burning around the state has been sitting here for the last week.  The air quality app I use was glowing red for stay indoors and orange for be careful and so I’ve taken the cautious approach and not gone for any lung-busting bike rides.  Yesterday I couldn’t take it anymore and went despite an orange alert which translates to something like “you’re inhaling more 40 micrograms of those really small smoke particles that can get into your bloodstream with each breath.”  Sounds terrifying but I went anyway.  I was missing the endorphins of the bike ride enough that I was willing to take the risk. Somewhere in my brain I did the math and concluded that the risk was worth the reward, or that the risk wasn’t enough of a threat to my health.

In this pandemic many of us are making similar risk assessments.  Every time we get close to people outside of our household, we are risking contracting COVID-19.  We can take precautions to reduce the risk, but the risk exists, nonetheless.  It’s amazing how boredom will motivate us to take more risk.

An article this week in The New York Times by Richard Friedman discussed boredom in a pandemic, and referenced an experiment.  The results suggest we have a near hysterical dread of boredom.  The experiment was that people were to sit in an empty room by themselves for 15 minutes.  Their only entertainment was their own thoughts.  They were also given the option to give themselves electric shocks. 67% of the men, and 25% of the women chose to give themselves electric shocks. In other words they chose negative stimulation rather than no stimulation, according to Friedman.

An equal or more hysterical dread comes from the possibility of losing money, or not having enough money.  Some of the greatest risks to our well-being come from our work.  The stress that our work puts on our body takes its toll, and we know it is happening but the fear of not having enough or not being able to keep up with the Jones’s overrides the risks to our health.

Holding on to our hard money seems to be where we are most risk averse. Studies by Daniel Kahneman and Amos Tversky suggest that the pain from losing $1,000 could only be compensated by the pleasure of earning $2,000.  Some people don’t reinvest their savings because their fear of losing them is too great.  Most people who do have savings invest in the stock market using one of the many risk management strategies the financial services industry promotes.  Some people re-invest in business’s they operate.

This article is about risk awareness, the next article will be about ways to manage risk with your savings.  Take the time to sit and notice the risks you take and don’t take.  Try to notice any inclinations to follow crowd behavior and think logically or maybe even intuitively about the decisions you make.  Maybe you notice that less risk might be more risky, or perhaps swimming in shark invested waters isn’t that rewarding after-all.

Tim Thomas
Wealthcare Advisory Partners

The views in this material were those of the Advisor at the time of writing this report and may not reflect the views Wealthcare Advisory Partners LLC. These views are intended to assist clients and do not constitute investment advice. Advisory services offered through Wealthcare Advisory Partners.  Wealthcare Advisory Partners LLC is a registered investment advisor with the U.S Securities and Exchange Commission.

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