Apr
22
2011

How Age Influences Our Risk Appetite?

An article by Rashmi

The old are anxious and watchful. The young are fearless and daring. We’ve grown up with this conviction and it is really difficult to accept a fact that doesn’t go along with this notion. We’ve seen our grandparents tip us off to be careful every time we stepped out of the house. They’d be frightened at the slightest scare! game. They would get startled easily and why wouldn’t they apparently panic when it comes to money!

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The younger generation is but the opposite of what they are going to turn into in years to come. When they start out afresh, they tend to slapdash things in a jiffy! Life is short, and time is less… we stick to the motto until we realize we’ve walked over decades of journey all through life and time never ran short until we pushed it ahead.

Investing isn’t the Old Guys’ Thing Anymore

Coming back to if the old would panic when it comes to money, well, this is a long diction. Throughout the life, people plan out things, strategize and act as per the intended plan. Security and good returns are the two chief ingredients that make a sound investment. However, the Sharpe Ratio which is a direct measure of reward-to-risk determines the amount of goodness in an investment.

Drastic Shift in Investment Approach

As our age progresses, the Sharpe Ratio shifts from a gradual growing, safe and secure option towards the one that tends to be lucrative with higher rate of return within shorter span of time. As gradual increase is replaced by sudden profits, security also is liable to getting swapped with high risk factor and this is something we are likely to ignore with our growing age. Do we turn greedy towards the second innings of our life, or we find out that now actually we have lesser time lefty in life to build up some more wealth?

Why Old people Take Higher Risks?

Is it the kids’ security concerns that needle us to take higher risks or is it carefree attitude after we know we’ve played our part well so far and its good time to have fun and let yourself go! Whatever may be the reason, but the higher risk appetite with progressive age certainly lets us all find out that we need to keep our emotions away while we walk through our trading and investment strategies.

Conclusion:

To know that risk evaluation is our capacity and not our courage that we misplace with age can perhaps let us gain the wisdom to hit the brakes just a little harder as the years go by. After all, trading isn’t a gaming platform, but another opportunity to add on to the wealth we leave for the next generation.

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