We're Only Human, Which Can Be a Problem for Investors
To avoid making common financial mistakes, investors must understand how human nature can lead them astray. The funny thing is human help can be the answer.


Even if you’re new to the stock market, most investors can identify several core tenets, such as buy low/sell high, diversify your portfolio, don’t time the market and stay disciplined.
Though these principles seem rational and intuitive, millions of investors get them wrong every year. The reason is simple: Investing is inherently emotional. We invest to grow our wealth and provide for ourselves and our families. When the markets become volatile, the primitive parts of our brains kick in, and we react like our Neanderthal cousins being hunted by a hungry saber-toothed tiger.
The perils of being human
Humans make investing mistakes precisely because we are human. We react emotionally. Though we know we’re supposed to buy low and sell high, many investors do the opposite. They sell because they fear the market will plummet further and only get back in once prices have risen, missing out entirely on the upside.
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When the markets are high, some investors ignore the prudence of diversification, going all-in on a specific segment, such as tech stocks or housing, because they conveniently forget historical bear markets (a phenomenon called recency bias) like the dotcom bust and the global financial crisis that prove “what goes up, must come down.”
Letting fear get the best of us
Nobel Prize-winning psychologist Daniel Kahneman found that 90% of our financial decisions are rooted in emotion and only 10% in logic. Most notably, investors are ruled by one emotion above all others: fear.
According to Kahneman, people are more fearful of losing $100 than are excited about winning $100. That fear can be destructive, causing investors to pull their money out of the markets at the first sign of a downturn or prevent people from making positive, proactive decisions, such as starting a business.
What we can do about it
How can investors learn to control the emotional, irrational parts of their brains? Working with an experienced financial adviser can help. Beyond offering sound advice, a trusted financial professional can provide a level head when a nervous investor is sweating the latest market downturn.
Advisers plan for the long term and aren’t fazed by regular market cycles. They work with their clients to create a balanced portfolio of stocks, bonds and alternative investments that can weather the market's inevitable ups and downs.
Since its introduction in 1957, the S&P 500 has had an average return of 10.7%. Over the past decade, the index’s average has been even higher — around 12.39%. So, with a well-diversified portfolio, investors will be firmly positioned to safeguard their long-term financial health (please note that past returns do not predict future returns).
The limits of robo-advisers
Of course, not all investors have equal access to financial support. Since most advisers charge fees according to assets under management (AUM), they typically set minimum investment requirements, making it harder for people just starting to build a nest egg.
But the rise of the robo-adviser is changing the equation. Robo-advisers are computer algorithms that construct investment portfolios.
According to a 2023 Investopedia survey, 16% of people use a robo-adviser to build their retirement, and 9% would use one to grow their long-term wealth. Robo-advisers are most widely adopted among Gen Z and Millennial investors, who are more fluent in using technology and tend to have fewer financial complications. But are robo-advisers a suitable replacement for humans?
Getting help from humans
While digital tools can help build the nuts and bolts of a standard portfolio, they can’t navigate the more specialized situations relating to taxes or serving niche categories, such as business-owner clients, meaning that these apps might serve a purpose when an investor is just starting out but outgrow their usefulness over time. Many robo-advisers pair human and computer algorithms, combining high tech and high touch. The problem is that humans tend to play a subordinate role, which makes it harder to build strong relationships that sustain the adviser-client relationship.
For tech to synch with humans, the adviser needs to be in charge, using the algorithm to help them achieve the client’s broader goals. Clients can’t turn to an algorithm when they’re questioning their investment approach or how to respond to a major life transition, such as divorce or the death of a parent.
Ultimately, financial technology is no different from any other digital tool. Vacationers can use any number of travel websites to help them find the best place to stay and what to do while they’re traveling, but they first need to decide if they’d prefer to sip wine in the South of France or go sightseeing in London.
As humans, we crave connection, and only another human can help us stay the course when the primitive parts of our brain send destructive signals.
This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Past performance does not guarantee future performance. Investments involve risk. You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. Investment Advisory Services are offered through Ballast Rock Private Wealth, a registered investment adviser.
Related Content
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- How AI Can Help Take the Emotion Out of Investor Decisions
- The Psychology Behind Your Worst Investment Decisions
- Financial Planning: The Best Defense Against Financial Fear
- Why Your Investments Must Change as You Age — and How to Do It
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Building on her 20-year career in financial services, Emily Glassman is Director of Strategy at Ballast Rock Private Wealth, where she helps the firm engage with clients to develop an overall financial strategy, manage their investments and execute on their wealth management plans. Before joining Ballast Rock, Emily served as Co-Head of Business Development at Artivest. Previously, she was Vice President, Client Service at BBR Partners, having started her career in institutional equity derivative sales at Goldman Sachs.
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