Avoid winter investing blahs

You’re probably more risk-averse in winter than summer, says a study.

The researchers, Lisa Kramer of the Rotman School of Business (Toronto) and J. Mark Weber of the School of Environment, Enterprise, and Development (Waterloo), had subjects undergo a “Safe Asset Versus Risk Task.”

They asked participants in July, December, and the following July what portion of their $20 payment they would like to invest. The invested amount had equal chances of paying back 110% or -100%, so if a participant chose to invest all $20, he would receive either $42 or $0. If he only invested, say, $8, he’d be guaranteed $12 and the $8 would become either $16.80 or $0.

Everyone, and particularly those with seasonal affective disorder (SAD), put less money at risk in December and more in each July. While the authors hypothesized SAD sufferers would be more risk-averse in winter, they were surprised all study participants exhibited investment trepidation during the darker months.

“This highlights how important emotions are in financial decision-making,” says Kramer. “Risk aversion varies through the year. Somebody who sets his or her portfolio allocation in the summer has to be aware the portfolio is going to feel riskier in the winter.”

While previous studies have shown SAD to be a factor more generally in financial trends, this study is the first to show how seasonality affects risk aversion at the level of an individual investor.

To see how you would fare on the test, click here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.