How do you manage your monthly budgets? How good are you at bargaining? What are your investment traits- do you constantly go through your bank balances, and bank statements? Consumer behaviour is considered to be one of the most significant topics of discussion. Behavioral finance is important for studying the personality traits of investors and could be helpful for many. We have witnessed many unhealthy financial behavioral traits- rising debts, losing out in markets due to overconfidence and what not. After all, managing money is an art, isn’t it?
Here, we go through two diametrically opposite financial personalities- the anxious investor and the hoarder.
The Anxious Investor:
They love risks and don’t seem to be too affected by the lows of the market. These kinds of traders trade more than often. Thus, they can be said to be accustomed to the market behavior. However, despite them being vulnerable to being beaten by the market, they are often overconfident and hence, they are the most frequent traders in the market. Research says that this kind of behavior is mostly noticed in affluent traders.
Anxious investors are more often the day traders who are very well known to the highs and the lows of the market and yet they are overconfident that taking risks will reward them. Thus, they are more likely to end up accumulating losses more than anyone else. After all, isn’t the market about taking these risks? However, why should then these investors be subjected to the adjective, ‘anxious’? This is because of their tendency to over trade, they are motivated to do things (to trade) rather than not. Markets are addictive and bad decisions are ought to cause anxiety. The more you stay in the market, the more likely is the possibility that you will over trade, and the more you overtrade, greater is the anxiety which accompanies your investments.
They often buy stocks at high prices and sell them at low prices- they like taking risks (this strategy is known as ‘relative strength’) when conditions are favorable- they buy when stocks are strong, accumulate gains and sell them when they are the weakest. Relative strength is one of the most difficult trading strategies accrued.
However, they don’t take risks when they are bearish on the market. In addition, day trading is something where it is difficult to keep track of your returns and you do most of the trading on the basis of instinct. Thus, the traders who adopt this strategy of buying and holding often under perform. Most of the individual traders behave instinctively rather than strategically and thus they are more likely to fall under this category. Markets sometimes can be very cruel and these investors end up bearing most of the brunt of it. This kind of behaviour may not be of much use in the long run but yes, why won’t we like to trade on our terms?
One such data from a betting website shows that 82% of those who indulge in trading end up losing and average losses are quite high. A simple advice for these anxious traders could be to take decisions strategically for the long term as well. You thrive on risk, you trade frequently and you’re overconfident- if you fulfill these traits, then yes, you are an anxious investor! So are you an anxious investor? If yes, then you qualify as Wilbert the Winner- The person who considers money as a game. However, your end goal should be motivated by love and compassion rather than taking a numero uno position.
The hoarders are true antithesis to the anxious investors. They abhor risk! They hardly believe in investing. They would prefer stockpiling cash rather than investing. The hoarders would spend their money rather than investing it. In short, they utilise money in all ways but investing. Risk is their enemy. They accumulate large hordes of cash and even if they plan to invest, they will prefer instruments of low risk. They might stack huge amounts of money in the form of fixed deposits. Their behavior might be because of their anticipation of a catastrophic risk, some emergency or a big financial crisis. Risk aversion is a widespread phenomenon.
This behavior might develop because of family background- where money is not often discussed. Hoarders might be influenced by stressed income or other financial issues. They value money more than the anxious investors. In the book ‘Mind Over Money’, Claudia Hammond, a psychology lecturer claims that if one grows in a family where money is tight, this might tend towards a behaviour that emphasizes a greater degree of security of money. They are more often than not stressed about their financial future and feel satisfied when they see huge hordes of cash. The sense of security derived from the savings is an overwhelming and crucial factor for hoarder’s behavior.
Are you often stressed while spending? Do you feel tense while lending money to someone else? Are you obsessed with fears of losing out your savings? Then presumably your financial behavior falls under the category of a hoarder! This behavior might come handy in emergency situations where savings become extremely important. However, savings might be counterproductive if inflationary pressures set in. Money will ultimately lose value because of inflation and thus stockpiling hordes of cash won’t give the expected return. Notwithstanding, there’s a difference between a hoarder and a saver. Deciding on monetary issues becomes way too complex for a hoarder as even with large amounts of money, one might find it really difficult to make decisions of saving and spending.
Pension freedom schemes were introduced in the UK in 2015. People could access their pension savings. Yet 33% of the pensioners withdrew money and put it back into their saving accounts. This behavior is an apt example of hoarder mentality. An advice for the hoarders might be that cash shouldn’t be considered as a long term investment option due to the risk of inflation. One needs to find a correct balance between saving and spending! Do you qualify as Harry the Hoarder? Like a squirrel, Harry tightly holds whatever it has to gain a sense of security!
Yes, budgeting is extremely important! Planning our budgets is essential. We should be aware that our personalities don’t take extreme sides and we live a healthy financial life.
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Belonging to Gurgaon, he is currently a student at Kirori Mal College pursuing Economics Hons. Ishaan is a fun loving person, soft at heart and a confident and dedicated soul. You can typically find him working for his endeavours or attending a Model United Nations conference. He likes to keep himself aware about the happenings around the world!