By now we know that our genes determine more than just our height and hair color—they can also influence whom we love and whether we should wear deodorant.
But did you know that your genes affect many of the money decisions you make, too? From how immune you are to making impulse buys, to whether or not you’re prone to committing common investing mistakes, lately, researchers have been delving into just how hardwired our money habits are.
However, when it comes to your finances, biology isn’t destiny, so today we’re digging into the latest research—including a study which examined the money habits of hundreds of Swedish twins—to reveal how to turn what could be financial faux pas you’re born with into sound money habits instead.
1. The Money Mistake: Overspending
What It Looks Like: Well, most of us know what overspending looks like, but according to Hersh Shefrin, lead researcher of a new report from Chase Blueprint called “Born to Spend? How Nature and Nurture Impact Spending and Borrowing Habits,” only 25% of us are born with what you might call the self-control gene that makes us immune to spending temptation. Luckily, if you know you have these tendencies, there are several ways to stay on the straight and narrow.
2. The Money Mistake: Putting All Your Eggs In One Basket
What It Looks Like: Recently, Stephan Siegel, a professor of finance at the University of Washington Foster School of Business published “Nature or Nurture: What Determines Investor Behavior?,” along with fellow researchers Henrik Cronqvist and Amir Barnea.
After studying the portfolios of identical and fraternal Swedish twins, they concluded that “a genetic factor explains about one third of the variance in stock market participation and asset allocation.” In other words, your genes could lead you to make several common portfolio mistakes, the first of which is not diversifying enough.
What does that mean? If you have a non-diversified portfolio, then you’re putting all your eggs in one basket,” explains Lorrie Minor, a certified financial planner™ with LearnVest Planning Services. Simply put, if every stock you own is from one company, and that company stumbles, so does your portfolio. Or as Minor puts it: “If that one basket doesn’t do well, it’s going to tank your entire account.”
What You Can Do About It: Depending on your investing goals, you may want to choose a mix of stocks and bonds, consider investing in both U.S. and international opportunities and regularly rebalance your portfolio, to make sure that one area doesn’t have too much influence on your account’s overall performance. Still confused? Our Start Investing Bootcamp will give you an overview of how and why to begin building a portfolio.