This real-world phobia is the fear of going outside. In the investing arena, it typically
manifests itself in a debilitating inability to invest outside of one's own employer.
Many investors are intimidated by the
countless choices available in their 401(k) plans, for
example, and believe -- falsely -- that they are making
the safe choice by electing to invest in "what they
know." The result: These investors wind up putting all
their retirement money in the fortunes of a single company
-- the same company upon which they also rely for their
salary. It's a high-risk approach.
Experts say diversification among various asset classes
is the best way to manage risk. For the domestic portion
of your portfolio, an investment in a broad index of
U.S. stocks is actually a simpler bet to understand
than an investment in one's own company, because individual
companies sometimes fall on hard times and never recover.
But the investor in a broad index fund is betting that
the economy will continue to grow and that American
business will figure out a way to continue to generate
Stock markets have ups and downs, to be
sure. But when time horizons are still measured in decades,
the American economy is still a pretty safe bet. So
get your shots, and bring a raincoat. But it's OK to
These are just a few of the many investmental disorders that sabotage the decisions of millions
of investors. It may be tempting to write off behavioral finance as the study of investor stupidity. But this
temptation is itself rooted in dysfunction. The reality is that these so-called disorders are simply human
nature. And investmental illness, to some degree, afflicts us all.