How the gamification of investing could harm your investment strategy

13 November 2024

Some investment platforms and apps are incorporating elements of gameplay to encourage investors to engage with their portfolios more. While that might seem like a positive step, research indicates it could lead to investors taking more risk than is appropriate for them.

It’s easy to see why some investors might view investing as a game. Bold headlines about stock movements can make investing exciting, and there’s the thrill of potentially “winning” if the value of your investments rises. Yet, thinking of investing as a game could mean you overlook some of the potential risks.

Study: Gamification often leads to increased risk-taking

French research conducted by Strasbourg University and independent public authority AMF looked at the link between gamification and risk-taking. The study assessed how stimulus techniques derived from video games may be applied to investments, such as earning virtual badges.

More than 360 young adults were given an initial sum of €22 to spend over 16 sessions. The participants were asked to decide the proportion that should be invested in risky assets and the amount to be kept risk-free. They also had the choice to copy the decisions of the participants with the best performance in previous sessions.

Interestingly, the results found that the “nudge” power of symbolic trophies played a role in investment behaviour, including an investor's attitude to risk. Receiving “rewards” for risky behaviour encouraged investors to take additional risks.

This interactive element of gamified investing could make investing more enjoyable and lead to your brain releasing dopamine – the chemical that’s linked to feelings of motivation and reward-seeking. That might not seem harmful, but, for some, it may lead to gradually investing more and taking greater risks than is appropriate for them.

The AMF research also noted that around 20% of participants chose to copy the decisions of the best performer.

It highlights the potential effects of a type of behavioural bias called “herd mentality” where investors follow and copy what another investor is doing. It’s often influenced by emotion, as they believe if others are doing it, they should too. However, as it means decisions aren’t based on analysis or their own circumstances, it could lead to decisions that aren’t right for them.

Gamification is already being used by some fintech companies with colourful apps that use playful notifications to nudge you towards your next investments. Some of these allow you to track progress in a way that’s similar to the “rewards” offered in the French study.

Other apps have also added a social element, so you can follow the decisions of other investors. Like the study, some may choose to follow the crowd rather than consider what’s right for them.

So, while viewing investing as a game might be fun, it could be harmful to your overall investment strategy and performance.

3 sensible tips that could stop you from viewing investing as a game

1. Avoid checking your investments too regularly

While it might seem counterintuitive, stopping yourself from checking your investments too frequently could be a good thing.

Market movements mean the value of your investments will change every day, and sometimes they’ll experience sharp drops or rises. Keeping tabs on these short-term movements may mean you’re more likely to be tempted to make changes rather than sticking to your long-term investment strategy.

Try to limit how regularly you review investment performance and, when you do, prioritise the bigger picture.

2. Remember, investing is a marathon, not a sprint

While investing is sometimes portrayed as a way to get rich quick in the media if you choose the “right” investment, for most investors, it’s a marathon, not a sprint.

So, when you’re reviewing your investments, look at the bigger picture. Rather than simply reviewing how your portfolio has performed in the last week or month, look at it over the years. Typically, when you zoom out, the peaks and troughs of short-term market movements will smooth out to show a steady pace of growth.

Of course, investment returns cannot be guaranteed and the value of your investments may fall as well as rise. However, data shows that, historically, markets have delivered returns over a long-term time frame, even after experiencing downturns.

3. Focus on your own goals

Gamification could make it seem like you’re competing against others when investing. Instead, focus on the reasons you’re investing – what are your goals?

If you aim to deliver 5% annual returns over the long term to boost your retirement savings, taking additional risk to “win” could place your long-term performance at risk. So, rather than focusing on how you could maximise returns, look at what you may need to do to achieve your goals.

It might not seem as exciting as trying to secure the highest investment returns possible, but it’s an approach that could help you reach your aspirations while balancing investment risk so that it’s appropriate for you and your circumstances.

Contact us to discuss your long-term investment strategy

If you’d like to review your investments and understand how they could support your long-term goals, please get in touch. We can work with you to invest your assets in a way that reflects your life aspirations and risk profile.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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