Risk aversion on the markets is falling
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Risk aversion brings the notion of risk and performance in financial markets closer together. The lower an investor's risk aversion, the better able he is to take risks to maximize portfolio performance. Conversely, an investor with strong risk aversion seeks above all to reduce his risk as much as possible, which limits the performance of his portfolio. Each individual’s risk aversion is unique.
We find that risk aversion is decreasing generation after generation. If you think about it, each generation takes a step forward. Our grandparents were investing in bonds, our parents in equities and life insurance, and now it's time for trading and UCITS (SICAV, FCP) with investments in every geographical area. Even traditional life insurance offers its clients the opportunity to boost the profitability of their account by investing part of their capital in an equity fund. I caricature society a bit by saying that, but it's very much a general trend.
At the time, if you were born poor, there was a good chance that you would stay poor all your life. Your parents’ social status determined your standard of living for your entire existence! I am not going to say that today this is no longer the case, but everyone has the opportunity through studies to climb the social ladder. Difficult yes but possible! On the financial markets, we find the same situation. Before, your grandparents or even parents didn't expect to make a fortune on the stock market, they knew what an investment could bring and didn't expect more.
Today, things have changed. We no longer think that it is impossible to make a fortune or, without going that far, to make our lives more comfortable with the money generated on the financial markets. It becomes an obsession for some people, and those who were only marginal at the time are now in the norm. It is not enough to look at visits to sites about the financial markets, the trade shows, etc. Everyone wants to learn about trading in the hope of making money. The dream of living from trading is in full swing. Investors are looking for the coup of the century on the stock market.
To achieve this, people are willing to take more and more risk. The problem is that you have to know how to manage your risk in order not to lose everything (which is unfortunately often the case). You're going to tell me that not everyone does trading. That’s true but there is a drop in risk aversion even among those who are usually the most cautious. Just look at the phenomenal growth of UCITS. Everyone subscribes to it. Most people choose to boost their portfolio to a minimum and hope to generate a little more performance. They often know that it is not without additional risk. Among these people, risk aversion tends to decrease but they prefer to transfer the additional risk to a third party (the fund managers). Thus, many fathers will find themselves indirectly with foreign equities, even from emerging countries
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But this change of mentality did not happen on its own.
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We find that risk aversion is decreasing generation after generation. If you think about it, each generation takes a step forward. Our grandparents were investing in bonds, our parents in equities and life insurance, and now it's time for trading and UCITS (SICAV, FCP) with investments in every geographical area. Even traditional life insurance offers its clients the opportunity to boost the profitability of their account by investing part of their capital in an equity fund. I caricature society a bit by saying that, but it's very much a general trend.
A change of mentality?
At the time, if you were born poor, there was a good chance that you would stay poor all your life. Your parents’ social status determined your standard of living for your entire existence! I am not going to say that today this is no longer the case, but everyone has the opportunity through studies to climb the social ladder. Difficult yes but possible! On the financial markets, we find the same situation. Before, your grandparents or even parents didn't expect to make a fortune on the stock market, they knew what an investment could bring and didn't expect more.
Today, things have changed. We no longer think that it is impossible to make a fortune or, without going that far, to make our lives more comfortable with the money generated on the financial markets. It becomes an obsession for some people, and those who were only marginal at the time are now in the norm. It is not enough to look at visits to sites about the financial markets, the trade shows, etc. Everyone wants to learn about trading in the hope of making money. The dream of living from trading is in full swing. Investors are looking for the coup of the century on the stock market.
To achieve this, people are willing to take more and more risk. The problem is that you have to know how to manage your risk in order not to lose everything (which is unfortunately often the case). You're going to tell me that not everyone does trading. That’s true but there is a drop in risk aversion even among those who are usually the most cautious. Just look at the phenomenal growth of UCITS. Everyone subscribes to it. Most people choose to boost their portfolio to a minimum and hope to generate a little more performance. They often know that it is not without additional risk. Among these people, risk aversion tends to decrease but they prefer to transfer the additional risk to a third party (the fund managers). Thus, many fathers will find themselves indirectly with foreign equities, even from emerging countries
…
But this change of mentality did not happen on its own.
What factors led to a decrease in risk aversion?
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Technological innovation
: With the development of trading platforms, all markets are now accessible with a simple click. Investing has never been easier, you only have to click a button while our parents had to call their bank to place an order. In addition, the order is executed instantly. This creates a sense of freedom, you can invest in anything you want anywhere in the world. Faced with all these opportunities, the investor has the impression that it is easier than before to earn money. This desire takes precedence over his aversion to risk and tends to diminish it.-
Creation of new products
: Today's products are designed to facilitate trading for individuals while providing them with strong leverage. One example is CFDs on shares. With CFDs the number of shares available today is growing (French, foreign shares, etc.). These products allow people to buy but also to sell without constraint (which is not the case with cash equity on the MSM for the previous generation). They are also highly leveraged products and that's what attracts investors who think they can make a lot of money. This is obviously illusory without good training and strict risk management! The simplicity of these products gives the impression that trading is easy and this tends to reduce risk aversion.-
Access to new markets
: Investment opportunities are now multiplied with the opening to individuals of new markets such as Forex. New investors are attracted and, there again, we find strong leverage at the trader's disposal. The lure of profit is too strong for many investors and they forget everything else! This is what leads to the loss of their capital.-
