Investors and the Bear; The latest research on risk tolerance and expectations gives advisors insights into how clients will react in the next down market

According to several recent studies of the bear market: 1. The actual impact of the bear market on investors has been exaggerated by the press. 2. Clients had been expecting that their advisors could protect them from the vagaries of the market. 3. Contrary to popular belief, behavioral changes in a bear market are not due to a collapse in risk tolerance but rather to changes in risk perception. 4. The bear market experience has decreased investors' overall sensitivity to market falls. The anecdotal evidence from advisors suggests a gloomier picture for their clients. But upon further questioning, this seems to have come from their interactions with a handful of clients rather than their client base as a whole. Thus, the negative outlook may be due to the fact that human beings overweight dramatic events and feel more pain from a negative event than the pleasure of an equivalent positive event.