Behavioral finance, investing expert: Your personality traits can predict how you monitor your portfolio (2024)

While there are countless investment concepts, books and data that exist, the truth is no one can predict what will actually happen in the market. That's why investing comes with a lot of uncertainty and risk.

There is, however, intel that individuals can pull from their own selves to provide insight into how they manage their investments.

Dan Egan, vice president of behavioral finance and investing at Betterment, suggests that there are two general personality traits, neuroticism and emotional intelligence, that have been linked to specific investing behaviors.

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According to Egan's own research, people who self-assess higher in neuroticism generally monitor their portfolios more and are more sensitive to market performance than those who self-assess lower in neuroticism.

"This means they logged in more in general, and more in response to large moves up or down in the market," he explains.

When it comes to emotional intelligence, Egan cites data reporting that people with higher emotional intelligence tend to invest in lower-cost funds, use tax-advantaged accounts and trade less in response to market drops (and just trade less in general).

In addition to personality traits, there are also certain demographics and characteristics that play a role in one's investment management. According to Betterment customers' login rates, the patterns listed below are several Egan shares that, on average, correlate with an individual's greater likelihood to monitor their account more frequently:

• Being male (8% higher)
• Being younger (3% higher for age 30 and younger)
• Having less tenure with Betterment (4% per year)
• Having a lower net worth
• Having a higher balance
• Using Betterment's mobile app

Overall, however, there's variation in how often people look at their portfolios. "Some people log in daily, but most people log in somewhere between once per month and once per week," Egan says. "A person will generally monitor their taxable brokerage 'trading' account far more frequently than their retirement accounts."

There's no "good" or "bad" personality type when it comes to investing. Rather, it's more important to be self-aware of your behaviors so that you can better set yourself up for success.

Egan gives the following example for someone low in neuroticism: while they're less sensitive to market movements, they might not be monitoring their portfolio enough to catch opportunities for rebalancing (adjusting your investments) or tax-loss harvesting (only paying taxes on your net profit). In this case, they could be better off using an automated investment service that monitors their portfolio for them. Robo-advisors are software platforms that use algorithms to create your investment portfolio, aiming to maximize your return potential according to your individual risk tolerance and risk capacity.

The best robo-advisors offer low-cost diversification and will automatically rebalance your portfolio regularly. Betterment does all this and offers all users a few automated tax tools, including tax-loss harvesting, where the robo-advisor will automatically sell holdings experiencing a loss to help offset taxes. Wealthfrontis another one that offers tax-loss harvesting that can canhelp offset the advisory fee. And, for clients with invested assets of $50,000 or more, when an investment declines in value, Charles Schwab's automatic tax-loss harvesting will help offset the taxes on investment gains.

While the above would make a good suggestion for someone low in neuroticism, Egan suggests that someone high in neuroticism who is more sensitive to market movements might instead want to use an intermediary to reduce the stress and anxiety from concern about markets. Getting advice from a financial planner in this instance can help to put you at ease.

"The more that you can approach investing in a way that manages and takes into account who you are and how you tend to behave, the better the long-term decisions you'll make," Egan adds.

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