Portfolio Losses and Volatility
Volatility, the constant change in a stock fund or portfolio value, is normal and cannot be avoided. None the less, it scares people, or to be more accurate, downside volatility scares people, while upside volatility makes them happy. Both of these emotions can cause problems for investors.
Upside volatility, the bright side, may give investors overconfidence and make them feel like they are in control and smart. This can lead to a poor decision of increasing risk. Portfolio losses, the dark side, may cause investors to sell and lock in the loss. Furthermore, people are risk averse, and losses create twice as much pain as increases create satisfaction. Investors emotions wax and wain with volatility when they should be focused on long term.