Are you a risk taker? If you invest, the answer is yes.

For each individual, the word “risk” evokes a different image or experience. A person’s perception of risk can be shaped by past experiences, recent stories in the media, the latest investment-related study, and incidents recounted by friends and associates. Too often, it’s these factors and not actual probabilities that shape an individual’s expectations for the future. “Recency” is the tendency to place more weight or significance on recent and current events than on past events. From a recency perspective, when the market is going up, investors project that it’s going to keep going up, and therefore invest more money. When the market is declining, investors don’t invest — or they sell — because they project that the market is going to keep declining. In the excitement of sustained bull markets, such as the exceptionally strong bull market of the late 1990s, investors become overly optimistic and underestimate or ignore risk altogether. Ironically, at times like those, many investors view the level of risk as being very low. Actually, it’s the opposite. It’s only when things go badly that investors realize they should be thinking about risk. Sometimes, they discover they are not as willing to take on as much risk