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Thursday, March 18, 2010

Older Investors Prone to Mental Misfires

The brain researchers have found interesting activity in the brains of seniors attempting to assess value in financial decision making. Still, most seniors have the advantage of having experienced a bear market or two which possibly offsets valuation difficulties as they age. In any event it is, at least to me, another argument for sticking using broad market indexed funds.


  1. I've certainly seen what I'd call an impairment of judgment in some older people I know as they have aged. Their risk gyroscope seems to have gone out of balance. For example, one invested heavily in gold stocks on the advice of some know-nothing broker who convinced him that this was the home run he needed to make him financially secure for the rest of his life. I don't think I need to tell you the outcome.

  2. There are big winners. And this is part of what keeps the game going. There are secretaries who retired as multimillionaires because they put everything they had into MCI stock. And so the dream lives on. There are people who go to the race track and put everything on a favorite horse. Lottery winners get big publicity.
    The problem is that there are a lot of losers out there because they don't diversify. If you make a concentrated bet you are going to get a lifestyle of Kolbe Bryant or the greeter at Wal-Mart. Think of the workers at Enron. One of the top companies in the country - until it wasn't.

    Otherwise you can take the more conservative route of having a secure and comfortable retirement - something that has been denied to most of the people (by far) who have lived on this planet.
    On another part of the post, much of the research I see indicates that older investors have greater staying power than younger investors because they have been through market downturns and have seen the market snap back right when everyone is ready to capitulate. Perhaps this offsets some deterioration in jugement when it comes to makng relative value judgements.

  3. Funny you should mention MCI...... I work with some folks who had their entire 401ks invested in MCI stock. They were multi-millionaires on paper when times were good, but lost it all when the company went bankrupt. Another lesson learned the hard way.

    I guess I'd be considered an older investor by now. I've been investing through the 80's bull market, the '87 crash, the '90s tech bubble. I know if you're properly diversified there's no need to panic. The market always comes back; it's just a matter of time.