Investors, stay in the game: Loss aversion causes big losses over long term

When a friend recently told me she wanted to invest more money in bonds, I was surprised. Not just because we rarely discuss specific investments. (I'm uncomfortable giving friends financial advice for obvious reasons). But mostly because she's considering loading up on bonds right now. Wow, bad timing.

So despite my self-imposed rule to not interfere, I couldn't help blurting out, "Are you sure? Don't you already have bonds?" She said she did, but then added how much she appreciates bond funds' regular gains. Of course it's a natural impulse to seek security. But my friend's dilemma illustrates a classic case of what behavioral economists call loss aversion.