How do Your Genes and Brain Affect Your Investment?

What things make you feel happy?

Eat delicious food, talk to friends, travel around, and so on.

Your pleasure is attributed to a neurotransmitter called dopamine, which is related to genes and the brain.

In this video, we will talk about how genes and the brain can affect our investment.

Let's look at a gene called DRD4 first.

It may have variations called alleles, which differ in the number of times a segment of the gene repeats itself.

The gene can affect dopamine receptors, and a high-repeat allele has an impact on reducing dopamine sensitivity.

Therefore, people with high-repeat alleles need more stimulation to feel the same level of happiness.

How is it related to investment?

Research published in the Journal of Risk and Uncertainty compared people with DRD4 7-repeat alleles with those with 4-repeat alleles.

The research found that participants with high-repeat alleles are more likely to take risks when faced with potential losses.

They also tend to make impulsive, risky, and short-sighted financial decisions.

For example, they are less likely to have overdraft protection on checking accounts and pay off credit cards monthly.

So, don't blame your companion too much if they are financially unreliable. It may be due to their genes.

Furthermore, how much do genes affect our investment?

One research analyzed data on 37,504 twins from the Swedish Twin Registry and their financial portfolios from the Swedish Tax Agency.

It found that the genetic factor explains about one-third of the differences in stock market participation and asset allocation.

However, it doesn't mean other factors, such as environment, experiences, or brain functions, are unimportant.

Now let's turn to the brain and begin with dopamine.

Dopamine is associated with the reward system in our brain, which is like a vehicle's engine.

When exposed to a rewarding stimulus, the reward system activates and releases dopamine, driving us to try to earn something.

Suppose you're in a bull market surrounded by money-making information.

You may become greedy, expect too much and ignore the risks.

As a result, you may buy assets at high prices with greater risks.

There is also another situation.

Suppose a financial crisis occurs, and the whole market is uncertain.

It is natural to feel angry, anxious, and afraid. You may make rash decisions to avoid further negative emotions.

However, that can be detrimental to your long-term investments.

This situation is related to another system in our brain, the loss aversion system.

It is like a vehicle's brake.

When exposed to a threatening stimulus, the system activates and uses various neurotransmitters to cause negative emotions, pushing you to escape.

People with less 5-hydroxytryptamine are more likely to get depressed and start this system.

The two systems are related to a primal part of your brain whose core is the amygdala.

This part is responsible for your emotions and triggers your fight-or-flight response when exposed to significant opportunities or threats.

However, another part of our brain, the prefrontal cortex, also matters and works like a vehicle's control system.

This part is charged with controlling emotions and making rational decisions. It will be switched off in financial emergencies.

How to switch it on?

Train your brain to focus more on your long-term results and make your financial goals, plans, and trading system clearer and stick to them.

In that way, you might find an anchor and be influenced less by random events and emotions.

When you experience strong negative emotions, you can get enough sleep and exercise to increase dopamine.

You can also bask in the sun and eat more food containing amino acids, like bananas and milk, to enrich your 5-hydroxytryptamine.

That may help you reduce the possibility of starting the loss aversion system.

Do you have any other strategies in mind? Please share them with us.