High-income men more likely to be emotional investors

Men with a high-income are more likely to make investment decisions based on emotion or on a recommendation from a friend, according to the results of a new survey focused on Canadians’ investment habits.

Specifically, the survey, conducted by Adam Hennick, an investment advisor with Hennick Wealth Management, finds that 69.2% of men with a high income between $100,000 and $149,000 regretted making an investment decision based on emotion, or a gut instinct.

In fact, almost twice as many men across Canada (13.7%) than women (7.5%) bought stocks based on a hunch or gut feeling while 34.2% of men would buy a stock based on a friend’s recommendation compared with 27.8% of women.

“Men seem particularly influenced by ‘insider advice’ from other males when investing,” Hennick says in a statement. “I hear a lot of ‘Warren from the baseball team says it’s a sure thing because he knows a guy’ sort of reasoning, but it never seems to be based on fact or research. Women just don’t think that way about investments, which is wise.”

Higher Income creates a higher likelihood of buying stocks based on a recommendation from a friend, the survey found, as 11.8% of those who have an annual income between $75,000 and $150,000 said they would buy a stock based on a friend’s recommendation compared with just 5.3% of Canadians who earn up to $74,000 annually.

Meanwhile, the likelihood that someone would make an investment based on emotion declines with age as 75% of survey participants aged 55 and older said they have not, and would never buy, a stock based on a “hunch” without doing research first.

In fact, 48.8% of those polled in this age group said their emotions did not play a part in their investment decisions while 32.6% of survey participants aged 18 to 34 said their emotions affect their investment decisions “fairly often” or “frequently.”

For financial advisors who have clients prone to making a decision based on emotions, Hennick suggests that a checklist of key questions could help these clients when choosing to make an investment.

“Maybe stock X is cool and they make something that you really like, but how has the stock performed over the past five years? Is it really worth buying into at the current price? What are the risks?,” he says.

As such, Hennick recommends that clients should be willing to commit to holding an investment for the long haul — at least three to five years — and that clients resist checking the investments on a daily basis as market fluctuations and other factors can take them on an emotional roller coaster.

In addition, advisors have to be available to put clients at ease and ensure any investments they may want to make fit their profile, Hennick says: “Investors have to trust their advisors, but advisors also need to be trustworthy by providing answers to their questions and ultimately understanding each investor’s goals and risk tolerance.”

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