Lynn O'Shaughnessy

Do you know how to invest? Do you enjoy the kind of financial success that would make you an obvious candidate to write a book about it? Do you sometimes wonder why you're even spending five minutes reading this Sunday column when you already know what I'm going to say?

If you've answered yes to these questions, you may or may not be an investing Hercules. Actually, your financial prowess might not exceed the abilities of us mere mortals. Your Achilles heel could be your own overconfidence.

That's the conclusion you can draw from a new study conducted by researchers at the Vanguard Group, who examined the trading habits of more than 1 million 401(k) participants from 2003 to 2004. The investors who traded the most in their workplace accounts exposed their nest eggs to far greater whiplash, but their high-wire portfolios didn't fare any better than the folks who may glance at their portfolios once a year. What's more, the 401(k) investors who rearranged their portfolios the most lost nearly 1 percentage point a year in performance versus the least active traders.

Who are these risk-takers? Most are older male professionals, who have held their jobs for a long time. These men are also far more affluent than the average 401(k) participant. In fact, these fellows are more likely to have higher household incomes and enjoy substantial wealth outside their 401(k)s. Their account balances are nearly 90 percent higher than the folks who rarely tinker with their portfolios.

Stephen P. Utkus, who heads the Vanguard Center for Retirement Research, calls these traders "men on the job on the Net." With online access to their accounts, moving their money is as easy as devouring a plate of buffalo wings. The guy factor has been documented before in a famous study of brokerage account activity in the late 1990s. Men fared worse than women in this landmark research, which was called, appropriately enough, "Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment."

According to those researchers, men traded 45 percent more frequently than women and their returns were worse than the female accounts. The increasing popularity of the Web only fueled the phenomenon of male investors gone wild. A few years ago, researchers from the University of California documented that the investment performance of a group of brokerage clients dropped dramatically when they stopped investing by telephone and started making their own trades online.


Lynn O'Shaughnessy

Lynn O'Shaughnessy is the author of Retirement Bible.

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