by Craig Erwin, Ph.D.
Photo by Andrea Piacquadio on Pexels.com
OLD-TIMERS MAY NOT BE BETTER INVESTORS THAN YOUNGER PEOPLE
Unfortunately, the wisdom we keep accumulating, during our lives, does not necessarily make us better investors. A recent study (Li, Liu, and Wu, 2024) found that middle-aged investors earned the best investment returns, while older investors earned lower returns. It appears that, after peaking at middle-age, our investing prowess may slip and slide as we age.
WHAT HURTS OLDER INVESTORS’ INVESTMENT PERFORMANCE?
Most likely cognitive decline is at work. Also, decades of experience may lead to overconfidence. Plus, mental shortcuts may lead to mistakes as older investors make faulty assumptions and trust their instincts and habits instead of facts.
AS YOU AGE, HOW CAN YOU LIMIT THE RISKS TO YOUR PORTFOLIO?
Take steps to maintain good health and slow cognitive decline. Keep learning all you can about money and investing. Learn about the risks of cognitive decline and mental shortcuts and how to limit the damage they may cause. Finally, get professional help, especially if your performance is sub-par.
Source: “Older investors at a loss: Cognitive aging and funds returns,” by Zhongtai Li, Jia Liu, and Yanran Wu; SSRN, November 12, 2024.
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