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Age vs experience - What drives investing behavior? / By: Siddhanta Singh

Generally, as people get older they become more risk-averse due to their need for retirement funds. Senior citizens, having been through the 1970s, the bubble of the 2000s, and the 2008 crisis tend to be skeptical of stocks. The newer generation, however, having grown up in a zero-interest rate environment, tends to be more risk-tolerant and chase above-market returns. 

Experience plays a greater role than age itself. Morgan Housel describes this as, Your personal experiences with money make up 0.000001% of what’s happened in the world, but maybe 80% of how you think the world works” (Housel, 2020). Having been scarred by the inflationary and recessionary period in the 80s and the 2000s stock market crash, millennials' pessimistic view of stocks can come from their negative exposure to such equities. 

According to Finra Foundation , 36% of investors under 35 years old report trading options, compared to 21% of investors who are 35 to 54 years old and 8% of investors 55 or older. In addition, 23%of investors under 35 report making purchases on margin (Ramos, 2022). This confidence in the stock market to deliver returns, even with very risky trading methods, is due to the more recent zero interest rate environment after the 2008 crisis. 

However, this risk-driven approach of trading on margin is coming to an end and investors are starting to gain a sense of reality. 

Ryan Wisniewski, a 29 year old consultant describes his experience as, “After seeing the crash in 2020 and  in 2022, I just went all cash.,“It's safe to say I will not be touching stocks any time soon.” 

On the other end, Dharam Pal, a 75-year-old business owner, found himself quite optimistic on the market even after the two crashes. Pal cites past market growth as signs of a future one, “In my lifetime I have seen the S&P go from a few hundred to four thousand dollars today.I am not worried about short fluctuations, I have seen them come and go.

Age leads to one being more risk averse, however, it is experience that influences the way in which one evaluates risk. As the tides of the markets turn from greed to fear, it is up to individuals to make of it what they may. 



Sources: 

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The Psychology of Money by Morgan Housel 

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Interviews:

Ryan Wisniewski, Consultant

Dharam Pal, Business Owner


Statistics:

investors 26-35: Have invested 50 to 75 percent in the equity market.

investors 36-50: Have invested 25 to 50 percent in the equity market. 

investors over 50: Have less than 25 percent of their investments in the equity market. 

https://go.gale.com/ps/i.do?id=GALE%7CA365890576&sid=googleScholar&v =2.1&it=r&linkaccess=abs&issn=09718907&p=AONE&sw=w#:~:text=Correspo ndence%20analysis%20Figure%20confirmed%20that,their%20investments%20 in%20equity%20market

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