SPOT THE SYMPTOM Gambling on short-term investments

If you hold any investments, you’ll be aware of the huge volatility that has taken place in stock markets and other investments since March last year. Stock markets initially plunged then recovered, while those with unregulated Bitcoin assets have been on a rollercoaster ride of late.

Add to this the GameStop story, where social-media-users-turnedday-traders sent the share price of a stock soaring, and you’ve got a recipe for what Greg Davies, at behavioural finance experts Oxford Risk, calls a ‘perfect storm for emotional investing’. ‘The pandemic means many investors are currently highly emotionally sensitive and have a shortened emotional time horizon, which increases the appeal of getrich-quick gambles,’ he says.

Davies says British investors are participating in a ‘crypto-assets gold rush, with retail investors piling into an incredibly volatile asset class that most don’t understand’.

Neil Bage, chief behavioural finance officer for Murphy Wealth, says that people are engaging in day trading for a dopamine hit – a slug of the pleasure-seeking chemical that they might more normally get from social activities. Some people respond to trauma by engaging in high-risk, sensation-seeking behaviour,’ he says. ‘GameStop is an example of what happens when people are bored after being home for so long. They need a boost of dopamine and to feel as if they are doing something enjoyable and meaningful.’

TREATMENT

Ask yourself the right questions, says Neil Bage. ‘Don’t ask yourself, “What difference could this make to me today if it went well?” Ask, “What difference would this make to my future if it all went horribly wrong?” This will ensure the decision you end up making will be more objectively thought through. It will be more rounded, considering the positives and the negatives.’

He also says accepting that some aspects of personal finance are boring will help you to make better decisions to protect your financial future. ‘Saving money is boring,’ he says. ‘Sometimes the pull to take a more exciting journey will seemingly outweigh your inner voice that is focused on a financially secure life.’