By Joe Mont,

investingWhen it comes to financial decisions and investing strategies, who does a better job: young, tech-savvy investors or their conservative, old-school elders?

Bad news for the adults: Research by Stanford University and Northwestern University's Kellogg School of Management found evidence that older investors may be more prone to make bold moves and bad choices.

In technical terms, "a variability in nucleus accumbens activity" may be to blame for irrational financial decisions made by some older investors. Put more simply: daydreaming.

The researchers found evidence that older investors are more prone to distractions and wandering thoughts that result in taking unnecessary risks and choosing stocks that they should otherwise have known to back away from. Poor decision-making isn't necessarily the result of senility, memory lapses or other cognitive declines that go hand in hand with aging.

As part of their study, men and women between the ages of 19 and 85, while having their brains scanned by an MRI, were put through a game that involved choosing among various stocks and bonds. Older subjects proved just as willing as younger ones to choose riskier investments, stocks over bonds. But the older participants more frequently made rash decisions, choosing stocks before they even considered performance and earnings data available to them. In some cases, they were well aware of companies' earnings, gains and losses, but chose weaker offerings nonetheless.

It wasn't forgetfulness that led to bad choices, but what the researchers referred to as "noise" -- other thoughts "leaking" into the task at hand.

In terms of brain chemistry, the release of the neurotransmitter dopamine -- traditionally thought to decline with age -- spiked during the experiment and could be partly to blame for the randomness of the choices made.

"We don't know a whole lot about how aging affects decision-making, particularly in the financial realm," says Brian Knutson, associate professor of psychology and neuroscience at Stanford University. "This is becoming increasingly important because the global population is aging, and so the financial decisions people make as they age are going to become an increasingly important aspect of the economy."

Beyond dopamine flashes and senior moments, there are differences in perspective between older and younger investors that can influence their moves, for better or worse.

Steve Johnson, a Boston area financial consultant for Charles Schwab (SCHW), says recent surveys have shown that younger investors are feeling less confident in their financial decisions.

Even if older investors are more confident about their moves, "it doesn't mean those are really the best decisions," he says.

Older investors often "anchor themselves into things that have happened in the past," Johnson says. The fear of rising inflation is one such example, as they flash back to the double-digit increases of the 1970s and "have convinced themselves that we have to see it again."

"Older investors are more reluctant to buy into fixed income," Johnson says. "After several years of seeing the market go down, we saw a lot of money poured into fixed income; now we see that income coming out as people start to be fearful of inflation. And yet, for those who are retired and looking for income, perhaps the best decision for them is to be looking at that allocation."

Older investors, he says, also tend to be creatures of habit when it comes to the stocks they choose, returning to stocks they and their parents were most familiar with over the years -- such companies as Exxon (XOM) and General Electric (GE).

"People tend to not look at [familiar companies] objectively and often own those stocks despite what the fundamentals may say," he says.

"Some of the older people, if they are more conservative, are going to look for dividend-paying stocks or dividend-paying mutual funds," says Rosanne Rogé, managing director of R.W. Rogé & Co., a New York-based wealth management firm. "The younger people are going to be a little more aware of other things they can invest in, like ETFs or emerging-market funds, something that will give them a little more bang for the buck. They have so many more choices than the older folks did. Back then, it was basically all about blue chip stocks."

Conventional wisdom is that younger investors are brash risk-takers and older folks are more cautious and methodical. Numerous post-recession studies, however, are finding that the opposite is true in many cases, with Generation Y and the even younger "millennials" proving to be skittish and risk averse when it comes to playing the market.

Johnson sees their approach as understandable. These are age groups that, thus far in their short lives, have witnessed the tragedy of 9/11 and lived through a recession, bursting sector bubbles, the collapse of the housing market and bailouts of "too big to fail" financial institutions.

"People have the sense that the market is against them," Johnson says.

An upside may be that the younger set may be more serious about paying off debt, increasing their savings and planning for the future.

"One of the positives coming out of the financial crisis is that we are starting to see a more responsible generation, one that says, 'debt was a bad issue for my parents ... and I don't want that to be me.' After seeing the damage that was wrought over the past couple of years, and how it impacted their parents, the younger generation says they can't afford to have that much volatility and that much movement within their portfolio and savings. They think, 'If I can invest this conservatively, and save more frequently, that's a much better plan than going at it with an aggressive portfolio and hoping that over time it does well."

Rogé says perspectives are shaped depending "on when they first got into the market."

"Those in their 30s and 40s are OK with taking on a little more risk," she says. "The ones in their 20s were just started to get involved in the market when they saw their 401(k) values go down. They are the ones who tend to be a little more conservative, because they've been burned -- and burned badly. The 30- and 40-year-olds, they've been there and done that. They know it comes back at some point, so they are willing to take on more risk. Not a lot, but a little bit more."

Younger investors are often better educated and more savvy about financial decisions than their elders were at their age, Rogé says. That is partly due to the volume of news and guidance available to them. It also springs from the reality that they, unlike the pension-collecting generations before them, have to take control of their own retirement plan.

"When your dad or my dad left the company, they received a gold watch and they got a fixed pension," she says. "They didn't need to have any other education. They knew what was coming in and provided for them, so any other money they had was usually in a savings account. They weren't much into the market back in those days. These kids today are really going to have to really rely on it. They have no choice."

More from

Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Forex for Beginners

Learn about trading currencies and foreign exchange transactions

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Major Fraud Alert

The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section:

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 12:26 AM Report abuse rate up rate down Reply

Do people have so much time on their hands that they do worthless research and actually think it's important? From my experience, it 100% bull. I want my two minutes back that I wasted reading this nonsense.

March 28 2011 at 11:57 AM Report abuse +2 rate up rate down Reply

Yeah, and a monkey with a blindfold can pick just as good a portfolio as
a self-proclaimed "expert" trader. Pick good companies that pay a dividend.
Don't buy unless you're prepared to hold them (3-5 years) and do your
homework !

March 28 2011 at 11:54 AM Report abuse +5 rate up rate down Reply


March 28 2011 at 11:20 AM Report abuse +1 rate up rate down Reply

The WORST research I have ever seen here, and AOL shows a lot of crap. But this takes the cake for ludicrous conclusions. No statistical measures...just brainwave and psychobabble nonsense.

March 28 2011 at 10:51 AM Report abuse +2 rate up rate down Reply

This is the biggest load of BS I have ever read......LMAO

March 28 2011 at 10:41 AM Report abuse +3 rate up rate down Reply

Remember experts get paided weather their right or wrong.

March 28 2011 at 10:22 AM Report abuse +3 rate up rate down Reply

B.S. and I hope all know what that stands for. There is nothing like the academic community to come up with all sorts of excuses - and blame. Taleb, "black swan", puts this molded thinking in with Plato. I sure am old, and I, Ain't taking any stupid risks. Hey, that means I am crazy! A fixed return, however small, is a damn good bet when compared to what every investment anaylst will try to snow you with. If I really needed that extra income I would invest in the very high risk commodity market and buy into contracts food related. That's the place were one had better be in good health as it bounces like a rubber ball, however since we are going to have a food shortage - it's a good bet.
It's all about the inconcievable, the unexpected and improbable that cannot be predicted. I am saying that it WILL happen, and begin this year. You know why, because knowone in their right mind would believe it possible. When the quake hit Japan I emailed a friend in Cal. and told them that the cloud of radiaoactive dust from the 1st reactor explosion would likely reach Cal. This was rejected by a very knowledgeable person who believed that reactors are like light swithces and they just simply shut off. The problem remains and a scant amount did travel the 5,000 miles. It's nothing to worry about, but - the sale of iodide is off the charts. It's as FDR said "we have nothing to fear, but fear itself", and fear wins. Let's suppose a good dose does get there. Washington, Oregon and Cal. make up over 15% of the U.S. food supply. Anyone for "glow in the dark" lettuce or "light up your life wine"?

March 26 2011 at 6:14 PM Report abuse rate up rate down Reply

Any investing strategy offered by advisors or wall street listings are to be carefully reviewed. Your money is hard earned money, so here comes investment slicks and blah blah blah, advise you where to put your hardearned money, they are there for fees and commissions and all the restrictions when it comes to withdrawals - scary......! I put a universal life insurance for my grandson, less than 10 years ago, 50 a month, now he has almost 9 thousand to help him in college if there will be an emergency, no fees, anytime withdrawal, I put in 5000 13 years ago for my grandson with mutual funds (Fidelity) and still 5000. Investment funds are only good for Buffett and company, they are protected because of their huge investments, small struggling investors are used and exploited for worthless portfolio. Why will investments companies protect your "meaningless" money with them? When it is time to close the account, they will give you all the hassle and fees. They are greedy traitors.

March 26 2011 at 12:40 PM Report abuse +3 rate up rate down Reply

And what happens when it tanks? Oldsters can't go remake it.

March 26 2011 at 9:32 AM Report abuse +3 rate up rate down Reply