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Published: Feb 27, 2023 7 min read

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Illustration of a man sitting at a desk, using his laptop, looking at investing charts and stock market analysis
Jared Oriel for Money

Investing can be fun. That doesn't mean it should be.

Technology’s increasing role in investing has made dabbling in the market more accessible than ever. In 2021, 44% of investors used mobile apps to place trades, up from 30% in 2018, according to the Financial Industry Regulatory Authority’s investor education foundation. A substantial swath of new investors entered the market in recent years, platforms like TikTok and Instagram became forums for bragging about investing wins, and even high schoolers took to trading investing tips between classes. Investing newbies watched as meme stocks like GameStop and popular cryptos like dogecoin exploded in value.

But the markets' good times can't last forever, and 2022 proved a humbling year for many investors as the prices of popular retail stocks and cryptocurrencies came crumbling down.

So while investing can be exciting — especially when the market conditions are good — experts say all the commotion can be a bad thing.

“We've been in a very adrenaline- and stress-fueled period for about two years, where investing was way too interesting and exciting," says Dan Egan, director of behavioral science for the investment company Betterment.

Why investors can experience frenzy

Interest in trading and investing skyrocketed in 2020 as the pandemic sequestered people inside. Desperate for a pastime and empowered by the do-it-yourself approachability of fintech, Egan says the excitement tied to 2020's initial boom in asset prices led to high-risk investing behavior for many newbies. And data suggest there were indeed many newcomers: A 2021 report from Charles Schwab estimates that 15% of all U.S. stock market players at the time of the survey started investing in 2020, and they were mostly younger people.

“More people got interested in investing in the stock market because it seemed like a sure thing,” Egan says. “When you stay in that kind of elevated stimulation environment for a long time, it actually changes the way your brain thinks about things.”

He adds that "a lot of trading apps focus on competitiveness, winning, making money and short-term views," and that it’s easier now for investors to over monitor their portfolio performance and make emotional decisions.

This is especially the case for men, who are overwhelmingly more likely to make risky investing decisions and react to market volatility, Egan says. Reports also show a difference in trading behavior for men and women: A survey published last year by Ellevest, an investment platform for women, found that 75% of women who are actively investing for retirement say they’ve continued their contributions despite market volatility compared to just two-thirds of men who continued making steady retirement contributions during the stock market downturn. A 2021 study from Fidelity Investments found that in the past decade, women had outperformed male investors by 40 basis points on average.

Perils of high-risk investing

While Egan says the market is still a good bet for those focused on stability and the long game, investors who experienced major highs and lows will likely struggle to adjust in a more subdued era.

“The thing that is gonna be hard for people is that they're gonna still feel like, ‘Well, I have to go in and trade,’” he says. “People can hurt themselves by attempting to be high-frequency traders in a more boring market environment.”

Though these investors may think frequently checking and changing their portfolios will give them more control, Egan says the opposite is true: These investors tend to underperform by reacting to markets.

Take the case of 25-year-old Omar Ghias, an amateur profiled by The Wall Street Journal who says he amassed around $1.5 million trading stocks during the pandemic before losing everything. Ben Carlson, a finance blogger and director of institutional asset management at Ritholtz Wealth Management, used his story in a recent post to showcase the potential economic consequences for those who treat the market like a casino.

"According to the story, he racked up more than $300,000 in credit card bills," Carlson writes. "As a young person with those kinds of gains, he must have felt invincible. Once that feeling sets in there is no way you’re going to cash out."

Building healthy investing habits

Like gambling, investing can be addicting, especially now that the ability the buy and sell is right at people’s fingertips. Building healthy habits and setting boundaries is crucial for investors’ long-term performances, according to Carlson. In fact, he says, successful investing should be relatively boring.

"Following the markets can be a form of entertainment as long as you don’t act on every impulse but the act of investing itself should not be exciting," Carlson said in the blog post.

If investors find they’re having a hard time resisting the temptation to check their investing apps, they’re better off creating doable strategies to curb the impulse, Egan says. That means putting down the smartphone — checking portfolios more than once a week can influence emotions and lead to poor investing decisions.

For those who still want to test their luck on the market, Egan recommends investors set aside a small amount of their wealth, like 5%, in a taxable account to play with.

“That's yours to go out and invest aggressively with and see how much you can grow it," he says. "Put the rest of it into some kind of a more balanced, diversified, risk-managed solution.”

Operating without a plan when it comes to investing is kind of like going to the grocery store hungry, Egan adds. Investors would be wise to make decisions about their portfolios at least three days before acting.

“We are smarter and more chill about the future, even if it's a little bit away than right now," Egan says. “I often liken investing to farming in that you don't go and dig up your crops a week after you plant them.”

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