Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 656

One risk after another

At any given point in time, there is one major investment risk that becomes the focus of everyone’s attention. Sometimes this will be a new and significant event (such as the war in Iran); other times it will be a risk that has lain dormant but suddenly becomes the thing to care about (like the recent AI/software company flare-up). The problem is not just that we almost always end up misjudging the impact of these risks, but that there is an incessant stream of them. Many investors seem to manage their portfolios from one risk to another, month by month, quarter by quarter. Suffice to say, this is probably not a strategy that can be successful over the long run.

As humans, we tend to judge risks by their availability – that is, we assess the severity and likelihood of a risk based on how prominent and emotive it is. It is easy to see the evolutionary benefit of this: if you worried a lot about very obvious threats, you probably had a better chance of survival.

While this focus on available risk may be a very effective human adaptation, it is incredibly unhelpful for most investors. There are two major problems. First, our tendency is to hugely exaggerate the risks we face at any given moment. This is particularly pertinent for long-term investors, as there are simply not many risks that are likely to matter in a predictable way over the horizons we care about. Second, given that we cannot know how any particular risk will unfold, it is incredibly difficult to do anything useful about it. What should we do? Get out of the market until the next risk comes along and then see how we feel?

The other issue with availability is that it creates a conveyor belt of risks, where one salient concern is in focus at any given point in time only for another one to come along the following month. Not only is the world far more complex and interconnected than this would suggest, but focusing on one particular risk means we are not considering many others.

For an investor, the next geopolitical risk feels far more vital than the risk of, say, trying to time your equity exposure or selling out of equities altogether. We are only wired to care about one of these – the thing that is front and centre right now, which is making us feel something.

We also tend to act as if the risk that currently has our rapt attention is far more important than whatever was on our minds six months ago, which we can barely remember. We struggle to imagine that we will be worrying about something else with similar intensity in a few months’ time.

Although how some risks come into central focus is obvious – the current situation in Iran being a good example – others seem to become the topic everyone cares about out of the blue. It can be an underlying risk that everyone has known about for a long time suddenly starting to feel vital.

Cass Sunstein and Timur Kuran wrote about this idea and defined it as an “availability cascade”. This is the process by which belief about a risk becomes acute because it is visible and frequently repeated. The spread is driven primarily by informational and reputational factors, which are self-reinforcing.

How does this work? Imagine that during one balmy summer a diver is bitten by a shark off the coast of Cornwall. What happens next?

Informational cascade: News stories appear everywhere about dangers lurking in British waters. The incredibly remote risk of being the victim of a shark attack has not changed, but how we feel about it has.

Reputational cascade: You are taking your family to the beach in Cornwall. You know the risk of a shark attack from letting your children swim in the sea is virtually non-existent, but you also know what other people might think. Haven’t you seen the news? Imagine the looks from the other parents as you lead your children into the water.

Availability isn’t generally about imaginary risks; it is about real risks being overstated because of how aware of them we are.

We see this exact phenomenon all the time in financial markets – in the emergence of bubbles and in sporadic panics about certain risks. We are bombarded with what seems like information and feel compelled to react because everyone around us is.

It is almost certain that the advent of social media and 24-hour news has made these availability cascades more frequent and more impactful.

Managing an investment portfolio for the long term while reacting to each headline risk is not only exhausting but highly likely to lead to rash decisions and poor outcomes. There is no easy solution to this; the spectre of availability can make it costly to our reputation to ignore risks even when they are wildly exaggerated or imponderable.

For long-term investors, the risks to meeting our objectives are far more likely to stem from our reaction to headline risks than from the risks themselves.

 

Joe Wiggins is Director of Research at UK wealth manager, St James’s Place and publisher of investment insights through a behavioural science lens at www.behaviouralinvestment.com. His book The Intelligent Fund Investor explores the beliefs and behaviours that lead investors astray, and shows how we can make better decisions.

This article was originally published on Joe’s website, Behavioural Investment, and is reproduced with permission.

 

  •   1 April 2026
  • 1
  •      
  •   

RELATED ARTICLES

The psychology of REIT investing

Stop paying attention

How likely are market crashes?

banner

Most viewed in recent weeks

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Australia has saved $4.5 trillion for retirement. Here's what matters more

Most Australians approaching retirement can tell you the exact dollar value of their super account. But success depends on more than a sizeable balance. Here's four key questions to ask yourself at the start of the financial year. 

Latest Updates

Investment strategies

UniSuper CIO shares his reflections on the 2025-2026 financial year

Markets climbed a wall of worry in FY26, but artificial intelligence remained the dominant force, rewarding some of the world’s biggest companies while leaving others behind.

Planning

Post-Budget blues? A knee jerk won’t help

Sweeping tax changes are reshaping the investment landscape and many investors are considering major restructures. But before chasing lower tax bills, it's worth asking whether those decisions will strengthen—or undermine your ability to build wealth across generations.

Investment strategies

Is value investing still relevant in today’s stockmarkets?

Is value investing relevant in an age when momentum investing, quant strategies and index funds increasingly dominate markets? It is underappreciated how share price distortions may be creating some of the best opportunities for patient, disciplined investors.

Investment strategies

How to find opportunity in global equities

Australia's concentrated market makes global diversification essential, but breadth alone is not enough. Investors still need a disciplined framework combining business quality, sensible valuation and a credible catalyst.

Gold

What keeps the world’s most patient investors returning to gold

While many investors are asking whether gold has peaked, the world's central banks appear to be asking different questions altogether. Their thinking offers useful insights for long-term investors.

Investment strategies

Don’t underestimate Australia

Investor sentiment towards Australia has turned increasingly gloomy, but the data tells a different story. There are still plenty of reasons to remain optimistic.

Superannuation

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.