Invest Financial Planning

Money And Emotions: Investing For The Long Term

Kelli Keough  |  September 10, 2020

Looking to get into day trading? When you see the next hot tip come across your newsfeed, think twice before you jump on the bandwagon.

Trading stocks online is now cheaper and easier than ever before. This is great news for investors, but not so great if an app is driving you – and everyone else and their mother – to day trade the latest hot stocks. Over the past few months, many people have been tempted to try their luck and click away hard-earned money. And occasional “luck” plus an appetite for gambling can drive a behavior that ultimately loses more often than it gains.

And it’s not just me saying it. A 2017 study by professors from UC Berkley, UC Davis, and Peking University found that less than 1% of day traders are able to outperform the markets consistently.

A similar study by professors from the University of Sao Paulo concluded that it is virtually impossible to day trade for a living, with only 1.1% of the investors being able to make Brazil’s minimum-wage day-trading. This list goes on and on.

So with all that data, why is day-trading still so popular? Emotions is one answer. Following the “herd,” getting lost in the noisy news cycle, or feeling overconfident, can all cloud sound logic, according to a recent study by financial services research firm Dalbar.

But not all investors are affected equally: it looks like women are less susceptible to these triggers. Women tend to stick to their long-term goals, no matter the distractions, according to a study by Warwick Business School. Men, on the other hand, tend to seek out the thrill of the process, which leads to overtrading, and eventually to underperformance. As a result, women’s performance was 1.8% higher compared to the performance of men.

Further, women tend to take more time educating themselves on potential investments before jumping on to another trendy opportunity. Which is frankly good advice for everyone. So while it may seem like women are more “conservative” in their investment decisions, the reality is, once they educate themselves on the risks necessary to take to reach their goals, they tend to take that risk in stride, and stick to their goals.

Of course, all that doesn’t mean you can’t carve out some “fun” investing money. In fact, in our own research, we have heard from investors, especially women, that dabbling in small, self-directed accounts provided a fun, “safe” way to get started before determining how to approach and manage larger, long-term investments.

To reach your long term goals, keep the fun investments to a sliver of your overall strategy – and be ready and able to lose it all. The secret sauce to personal financial success is simple: try to save more, pay off expensive debt, buy and hold investments for growth, have a plan, and stick to it. You can do this on your own, or you can consult a financial advisor to help you with the long game and to help keep your emotions in check. In a year when everyone is feeling a whole lot of emotions, it’s helpful to have that financial wing man or woman. Totally up to you. But the most important thing is to work with a trusted financial company or app that isn’t pushing you beyond your limits.

So when you see the next hot tip come across your newsfeed, think twice before you jump on the bandwagon: keep your emotions in check and your eye on the long-term prize.

Opinions expressed herein are those of the author and may differ from those of other J.P. Morgan employees and affiliates.


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