Scanning through my financial press summaries today I have come across an interesting report published by Reuters - Study shows why it is so scary to lose money.
The article was based on a study looking at "two women with a rare genetic condition called Urbach-Wiethe disease, which damages the amygdala, the almond-shaped center in the brain that controls fear and certain other acute emotions."
What the study found is:
"A fully functioning amygdala appears to make us more cautious ... We already know that the amygdala is involved in processing fear, and it also appears to make us 'afraid' to risk losing money."
What can we take away from this study?
Apart from the extreme measure of somehow interfering with the amygdala, this simple study provides evidence as to why some of us might be more risk averse than others. It reminds us that we are all different when it comes to investing and a one size fits all approach does not work. The important thing is to get as accurate an understanding as possible of our own tolerance to investment risk (and rewards) and structure our portfolios accordingly.