Investing term

What is Loss aversion?

Feeling losses about twice as strongly as equivalent gains — leading you to hold losers far too long.

Loss aversion is the well-documented quirk that losses feel about twice as painful as equivalent gains feel good. It drives bad decisions — clinging to losers to avoid "locking in" a loss, or selling everything in a panic to stop the pain. Recognizing that the feeling is lopsided helps you act on the numbers rather than the sting.

For example

Losing $1,000 hurts roughly twice as much as gaining $1,000 feels good — which is why people hold sinking stocks far too long to dodge the pain.

Loss aversion is taught hands-on in Stage 2 — Why Investing Matters (And When It Doesn't).

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Related terms

Asset classA broad category of investment with similar behavior. Stocks, bonds, cash, real estate, commodities.Behavior gapThe difference between a fund's reported return and what its investors actually earned — usually worse.Dollar-cost averagingInvesting a fixed amount on a fixed schedule, regardless of market level.FOMO buyingFear of missing out — piling into something after it has already run, because everyone else seems to be winning.
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