Market Extra: Here’s 1 reason investors do irrational things that sabotage their portfolios

Investors that neglect to align their portfolios with their tolerance for risk end up doing irrational things that ultimately sabotage their success.

Indeed, there are many stories of investors who dumped stocks after the 2008 market crash and have been afraid to re-enter the market, costing them dearly, notes Mike McDaniel, chief investment officer at Riskalyze, a provider of quantitative measurement of risk tolerance.

“Everyone knows they should buy low and sell high, but do the exact opposite, primarily because they do not know their own risk tolerance,” McDaniel said.

The bull market in large-cap U.S. equities SPX, +0.36% that has lasted nearly eight years with few severe pullbacks has contributed to a false sense of stability, resulting in heavier allocations to stocks by investors who should not be taking so much risk, according to some financial advisers.

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