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It’s Easy to Forget About Risk in a Stable Market

060214bucks-carl-sketch-master675Stability itself is destabilizing.

This is one of the defining ideas of the economist Hyman Minsky. And it matters because when we have periods of relative stability or happy results in the stock market (like now), we start to tell ourselves little stories. For example, we might believe that the stock market will behave like a bank certificate of deposit but pay us double-digit returns year after year.

We forget what normal market risk feels like, and we get comfortable with more and more risk. That makes it easier to borrow more money, because it’s all good. We say, “Risk? What risk?” as we move more of our 401(k) allocation into the stock market.

Read the rest of the article at The New York Times.

 

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