The insurance quote site Insure.com has developed a little sideline in presenting grisly, but fascinating, articles about how we often worry about the wrong risks. This year’s installment is “What’s more dangerous?” which claims, with statistical precision, that you’re more likely to die at the hands of your spouse than of a serial killer and more likely to perish in evening rush-hour traffic than you are after the bars close (or, for that matter, on New Year’s Eve, the night seasoned alcoholics like to call “Amateur Hour”). A previous installment pointed out you’re more likely to be killed by a bee than a shark.
Pieces like this remind me of how frequently we misjudge financial risk as well. Many people mistakenly think:
- Their company’s stock is less risky than a diversified mutual fund
- Stocks are less risky when the market’s booming and more risky when it’s falling
- That it’s better to put off investing for retirement when the stock market is volatile (fact is, the market is always volatile, and delays just mean you have to save more or settle for less when you retire).
Other common misjudgments: deciding you don’t need health insurance because you’re currently healthy (when you’re just one accident or illness away from potentially bankrupting bills without it) or following an investment guru because he’s made a good call lately (without checking to see how his last dozen or so predictions panned out).
It’s not easy to be rational in this world, but our financial security depends on it.