Money Brain: Why you probably have less money invested in stocks than you should

It is risky to ride a bicycle blindfolded. It is risky to walk over broken glass barefoot. It is risky to drink a hot beverage without checking its temperature. These foolish risks are one-sided in that they have a downside, but no real upside.

Buying stock is different. In the stock market, risk simply means uncertainty — not knowing which way stock prices will go next. The risk is two-sided, in that things may turn out worse than expected, but they may also turn out better.

How do investors weigh the upside and downside risks? Most investors are risk-averse. They are not interested in a stock that has a 50% chance of going up 20% and a 50% chance of going down 20%.

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