Types of Attitude Towards Risks in Investments

Date:  2021-03-12 13:09:56
2 pages  (566 words)
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This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
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This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Types of attitude towards risks

Risks are unforeseen events that can cause a threat of damage, liability, injury or loss to an individual or firm. They cause fear and anxiety in people hence they either choose to indulge in them or not. Without proper management of risks, businesses, individuals and companies can be prone to losses. Risks involve a psychological process, and there is a need to understand the behavior associated with risk management activities. There are different ways in which people view risks and thus hold attitude towards risks return trade-offs. Individuals or businesses can either be risk takers, averse or neutral. The level of insurability of these categories depends on the amount of losses one is prone.

Risk averse

These are investors or individuals who like venturing in investments with lower risks and predetermined earnings as compared to those with higher earnings but with unknown risks. They hate risks naturally and always shy away from risks thus prefer to have certainty and security which is affordable so as to achieve a high level of comfort. Besides, they are those who are willing to pay the amount which is more than the costs to ensure that the unpleasant risks are out of their daily lives.

Risks takers/seekers

Risks seekers individuals/investors who love to venture into investments which have higher (in the short-run or the long-run) returns with unknown risks. I.e. they choose to optimize their levels of returns by investing their resources in risky ventures. For example investing in the stock market or indulging in gambling. These individuals always refuse to accept the status quo and are in touch to a greater purpose. Quite often, they situate a lot of weight and focus on the product, services and ideas that lead to value creations and maximization. The key features of risks seekers include;

They are creators and not observers

They have an innate instinct to know the reason things are happening the way they then integrate it with attention, memory and motivation for achievement.

They hate losing but love winning since they are promotion-focused and believe that everything is achievable.

They can embrace failure and shake them off if they arise.

Risk neutral

It is a situation in which the investors ignore risks while they are making investment decisions (Being indifferent to risks). They only consider expected returns. Besides, the individuals, in this case, will not indulge in payment of extra cash to transfer risks from them to other parties or pay to get involved in any risky activities. For them, money is money and don't have any urge to pay insurance nor indulge in gambling activities. The type of attitude towards risks is mostly common in publicly traded corporations since the shareholders have the ability to diversify their portfolio.

Which investor (risk averter, taker and neutral) need insurance.

The decision regarding insurance depends on the extent to which individuals are willing to take risks in their daily endeavors. So in this case, the risk-seeking investors are the individuals who are prone to high levels of risks hence they stand a chance to get an insurance cover for the unforeseen dangers. On the other hand, risks averse also take a policy cover (insurance) since they want to be completely safe for any uncertain future and hence ready to pay the premium which is higher than the costs. Risk-neutral investors do not need an insurance policy cover.

 

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