Let’s say you invest $10,000 and it grows to $12,000. That $2,000 gain? Feels pretty good — maybe you even celebrate a little.
But if that same $10,000 drops to $8,000? That pit in your stomach lasts a whole lot longer. You might get anxious, frustrated, or even question your whole financial plan.
That reaction isn’t irrational. It’s actually wired into us. In behavioral finance, it’s called Loss Aversion — the idea that the pain of losing money is felt about twice as strongly as the pleasure of gaining it.
Why Does This Matter?
Loss aversion affects everything from how we invest to how we react when markets get volatile. It’s one of the most powerful (and sneaky) forces behind poor decision-making — especially when emotions are running high.
Here are a few ways it can show up:
- Panic selling when markets drop — locking in losses instead of riding out volatility.
- Avoiding risk entirely — which can lead to portfolios that don’t grow fast enough to meet your goals.
- Holding onto losing investments longer than you should — because you don't want to “make the loss real.”
A Real-World Example
During the COVID crash of 2020, we saw this play out in real time. Markets dropped fast, and many investors felt the urge to sell — not because their long-term goals had changed, but because the fear of losing more took over.
We worked with clients to step back, zoom out, and remember their plan. The ones who stayed invested saw their portfolios rebound — and then some — as the market recovered in record time.
The Good News?
Loss aversion is natural — but it doesn’t have to control your decisions. The key is building a system that keeps you grounded when your instincts start whispering bad advice.
That’s exactly what we talk about in this week’s educational series.
🎙️Prefer to listen?
Our podcast episode on loss aversion drops at the end of the week — so be sure to follow along for stories, tips, and strategies to help you stay on track. If you missed last weeks episode and want to get caught up, start from the beginning and learn why even smart investors make bad decisions — and what to do about it. Be sure to follow the channel on your favorite listening site so you can be updated as new episodes drop each week.
🎧 Listen Here:
Because while the market may move up and down, your discipline doesn’t have to.