A Personality Trait Tied to Stock Investing

Researchers have tried and failed to fully understand why so many people are unwilling to plunge into the stock market and ride the ups and downs of an investment that pays off over the long haul.

A new study finally lands on something that has the power to affect how people invest: personality. In fact, personality is as good at explaining investment decisions as the sex, age, income, wealth, and education of individuals combined, said researchers at Northwestern, DePaul University, and the London School of Economics.

They examined the Big 5 personality traits: openness, conscientiousness, extraversion, agreeableness, and neuroticism. Openness and neuroticism have the most influence on stock investing – with opposite effects. On the other hand, agreeableness, characterized by being cooperative and concerned about others, has nothing to do with why people buy stocks.

The downside of this study is that 80 percent of the people in it were white men over 60, who typically had more than $1 million in investments. Women, who are more hesitant than men to invest in stocks, should take the results with a grain of salt. This information also might’ve been more useful to financial advisers and employers sponsoring 401(k)s if it had focused on younger investors, who are at a critical time when their decisions have a huge impact on their retirement security.

Openness was the character trait that most drove stock market investing among the people in the study. An eagerness to engage in new aesthetic, travel, or intellectual experiences is common in people who are curious, creative, and aware of their feelings. To identify who fit this description, the researchers asked members of a national investment organization to evaluate, on a scale of 1 through 6, whether they are “full of ideas,” are “original thinkers, or “love to think up new ways of doing things.” They also asked how they felt about risk and how much of their money is in the stock market.

People with more open personalities, the researchers found, entertain the possibility of extremes, in the form of a stock market that has the potential to go way up or way down. And they are not overly afraid of taking risks and tend to allocate more of their investment portfolios to stocks.

Neuroticism has the opposite effect. These people are more emotionally unstable and have high levels of angst. In the survey, they admitted to being “overwhelmed by emotions,” “worriers,” and “easily” panicked.

People who have neurotic personalities are pessimistic about the stock market and worry that it might crash, the researchers found. Not surprisingly, pessimists do not tend to invest heavily in equities. (The researchers didn’t disclose the percentages for each personality trait.)

The behavior the study revealed about U.S. investors is apparently universal, because the researchers found that the influences of openness and neuroticism were the same when they analyzed Australian and German investors.

Personality, for obvious reasons, drives a lot of major decisions – about careers, marriage, and spending money. So why not one’s views of the stock market?

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.