Clumsy kitchen table investor often risks his piggy bank

This is the conclusion of an investigation by the Netherlands Authority for the Financial Markets (AFM). It’s all about execution-only investors, as stock market watchdog calls them. These are private individuals who invest without the help of an adviser or bank.

Too little spread

They make up two thirds of the 1.9 million Dutch households that invest, mainly driven by the low interest rate on savings.

About a third of these 1.2 million investors are just messing around. Common mistakes are too little diversification or too many risky products in the portfolio. “And that reduces the chance that you will achieve your goal,” explains Tamara van der Ster. She led the regulator’s investigation.

Money needed for later

More than a third of self-operating investors do this with money that they need sooner or later, according to the survey. This concerns money that is invested to be able to make ends meet later after your retirement, or as a savings account for the replacement of a car or washing machine.

One in eight kitchen table investors has the dangerous mix of ‘sub-optimal’ investing, as the AFM puts it, with money that cannot really be missed. Converted, this is about 120,000 households. It is remarkable that age or experience does not seem to matter, says Van der Ster.

Trading too much

What is striking is the connection between a lot of trading and the extent to which someone checks his app to see how his investments are doing. Trading too much is another common mistake investors make. Because you have to pay per transaction, this is at the expense of the return.

“Investors are prone to overreacting to price fluctuations they see,” explains Van der Ster. The more stoic the better, the supervisor preaches. The more often you check how things are going, the greater the chance that you will act impulsively, she explains.

Many investors do this anyway, about 70 percent of all investors check the status at least once a week. And the investors who trade the most according to the research look at least once a day.

Additional research into apps

Because of the risks consumers run as a result of this behaviour, the regulator will conduct additional research into the reason. To this end, investment apps are examined, for example to see what information investors receive and how it is presented.

“If you put your risky instruments at the top of your page, there’s a good chance an investor will buy them instead of something that better serves their own purpose,” explains Van der Ster.

The regulator will look at whether consumers are being influenced to make certain choices. “Is there control and is that to the detriment of the investor?”, she suggests as a possible research question. “And if we know that, then we can take the next steps,” adds Laura van Geest, chairman of the board of the AFM.

Difficult to intervene

This will then take the form of friendly but urgent advice, explains Hanzo van Beusekom, board member of the AFM. Legislation in this area dates from 2007 and is therefore rather outdated.

There are therefore no rules that an investment app must comply with, so the AFM cannot enforce anything. Is that bad? “Not in 80 to 90 percent of the cases,” says Van Beusekom. “Many parties want to be a reasonable player, they often make adjustments themselves.”

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