Interactive Investor

From bitcoin to GameStop, pandemic stress could hurt financial choices

Insights into the impact of Covid-19 on our financial decisions are offered in a new podcast series.

28th January 2021 12:51

by Rebecca O'Connor from interactive investor

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Insights into the impact of Covid-19 on our financial decisions are offered in a new podcast series.


The stress of living through a global pandemic is causing people to make financial decisions with “too much emotion” and with “too much of a short-term perspective”, both of which can be “harmful” to our long-term finances.

This and other insights into the impact of the pandemic on our financial decisions are in a new monthly podcast series from interactive investor, the DIY investment platform, with Oxford Risk, the behavioural finance consultancy, which will explore the impact of psychology on our long-term financial management.

The first episode examines:

  • How stress caused by the pandemic can affect financial decision-making
  • How to explain the recent rise of bitcoin in the context of our emotional response to the pandemic
  • How familiar narratives can influence our investment decisions more than risk/ return equations
  • How to balance short and long-term needs
  • How to avoid knee-jerk reactions
  • How our life circumstances and background might determine how we respond
  • How stress can change our investment choices

Becky O’Connor, Head of Pensions and Savings at interactive investor and podcast host, said: “The experience of living through this pandemic is affecting all of us in different ways. We wanted to explore the likely impact on our long-term financial decision-making, particularly how we invest, as this could have profound implications for financial well-being later on. It may also help to explain some of the recent unusual investor behaviour we have seen, for example, the rise of bitcoin and this week’s trading of GameStop.

“Human beings are complex bundles of emotion, experience and reason. We don’t always make sensible decisions, even when we know what the right thing to do is. We have launched this series in the hope that a greater understanding of our own psychology can help us make better financial decisions, particularly during these difficult times.”

On how the stress of the pandemic affects financial decision-making

Greg Davies, behavioural finance expert at Oxford Risk, said: “Stresses in one part of your life don’t just stay in one part of your life, they bleed over into your emotional state more generally and your decision-making more generally.

“If we are stressed for whatever reason, it will tend to make our decision-making more emotionally led and we will tend to focus our decisions on shorter time horizons and be less able to take a long-term view.

“And of course when it comes to financial decision-making, those two things can both be harmful: too much emotion in your decision and too much of a short-term perspective on your decision-making can both have very detrimental effects on the way in which we manage our finances.”

On holding more cash:

“We have seen people hold more in cash – this is not unreasonable at a time when you are worried about future income streams. Here’s an issue where the short-termism is entirely right, it’s about making sure we are secure. But it also pulls us away from making long term decisions. We are less likely to take risk, more likely to batten down the hatches. But making decisions that will harm future wealth to make yourself feel emotionally comfortable now can be a problem.”

On the rise of bitcoin:

“As humans, nobody buys a risk return trade-off, you buy a story of the investment, you buy a narrative. People tend to shy away from diversified portfolios of good investments towards concentrated portfolios of good stories, and they are very much not the same thing. A diversified portfolio of stuff I know nothing about does not make me feel comfortable. Particularly when stressed we grab towards familiar, the things we read about a lot. The things that people are telling convincing stories about. Some of that will come out as people buying bitcoin. 

“What people are doing is reaching for comfortable narratives because they are stressed and because their time horizons have shortened. But there are good stories and bad stories.”

Tips for avoiding short-termism when stressed:

  • Sleep on it
  • Phone a friend – talk to someone else about it, get them to play devil’s advocate to your thinking
  • Decision-making should not be about your investment portfolio in times of crisis
  • Slightly more frequent re-balancing to trim the sails
  • But mostly, leave your portfolio as it is, unless you need to pull off some money to create a bigger safety pot
  • Focus decision-making on your values and long-term goals

“All of those will take your thinking out of the here and now,” Mr Davies said.

Greg Davies was talking in the first in a new behavioural finance podcast series from interactive investor – Mind & Money - explores how the stress of the pandemic is affecting financial decision-making.

The monthly interviews will cover a range of topics, including how being a generous person affects our finances, how our parents’ attitude to money impacts our own and whether there are cultural barriers to good money management.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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