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More Investing Tools Won’t Solve All Your Problems

Behind every new tool is a human being grappling with how to use it.

Collage of phrenology head, dice and performance charts along with outlined decorative illustrations

New tools for investing—such as online trading platforms, cryptocurrency, private markets, and so on—have energized investing. These tools are opening new doors for investors and promoting engagement. For example, online trading platforms are bringing investing to different people than more-traditional avenues, attracting younger and minority investors. Moreover, with the recent boom of innovative uses of ChatGPT, one can only imagine how investors will use this tool in their finances.

But are all these new investment tools helping people with the primary objective of investing—reaching their financial goals? Or are people still struggling with common behavioral challenges, only now they’re being amplified by the speed, power, and complexity of new innovations?

1 Step Forward

There’s no doubt these new investment tools bring many potential benefits to investors. In some ways, these new tools have democratized investing by expanding access to a wider audience. With a few quick swipes on their phones, more people than ever can engage with their finances, access markets, make trades, try out new asset classes, and, overall, personalize their financial plan. But, with great power, there must also come great responsibility (Spider-Man, anyone?), and some investors may be struggling with this load.

2 Steps Back?

Preliminary evidence suggests some tools may increase investors’ vulnerability to decision-making biases, making it easier to make financial mistakes.

For example, the ease of trading a stock online may be dangerous given previous research, which found individual investors with high trading volume pay a substantial performance penalty. Unfortunately, Morningstar research found online investors were twice as likely to trade one or more times a week than investors who are not online, and others found trading volume generated by individual investors has almost doubled since 2010.

Investor motivations also show signs of behavioral biases taking a toll. For example, 48% of online investors showed signs of returns-chasing, a common consequence of the availability bias (that is, the tendency to overweight recent events, also called recency bias), reporting they made a trade because they thought it would “make me a lot of money.”

Online accounts also allow more investors access to sophisticated investing vehicles, such as options, leverage, and short-selling. However, investors may be overconfident about their knowledge of more-complex financial instruments. In a study conducted by Finra, 62% of options traders were unable to answer a basic question related to options trading and were less likely than investors who did not trade options to admit they didn’t know the answer. Investors who purchased options were both less informed and more confident—a dangerous combination that can lead to poor risk management.

Innovations and Challenges

Although new investment tools present clear benefits for investors (diversification, tax management, lower fees, transparency), they may also exacerbate well-known behavioral pitfalls such as overconfidence, recency bias, confirmation bias, and regret aversion. In some ways, these new tools have reduced guardrails that may have prevented investors from acting on those biases.

Only time will tell whether AI tools such as ChatGPT will also act as a mixed blessing. One thing is clear: Regardless of all the tools investors now have at their disposal, it is worth remembering that investors benefit by understanding how their choices today promote progress toward their long-term investing goals.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Authors

Samantha Lamas

Senior Behavioral Researcher
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Samantha Lamas is a behavioral researcher at Morningstar. She is a recipient of the Montgomery-Warschauer Award for her research in financial planning.

Lamas' research focuses on investor engagement and the factors that drive people's decision-making about investing and money. Her work delves into how people think about their financial goals, what they look for when seeking financial advice, and what kinds of mental shortcuts people use when making decisions about their personal finances.

Lamas joined Morningstar in 2016 as a product consultant working directly with the individual investor and advisor audience segments before moving into a research role.

Lamas holds a bachelor's degree in business with a concentration in finance from Dominican University. Follow Lamas on Twitter at @SamanthaLamas4 and on LinkedIn.

Email Samantha at

Danielle Labotka

Behavioral Scientist (Saving & Retirement)
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Danielle Labotka, Ph.D., is a behavioral scientist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She conducts original research to understand how investor and advisor behaviors and biases affect financial decision-making.

Before joining Morningstar in 2022, Labotka was a research fellow at the University of Michigan working on projects funded by the National Science Foundation. Her work has been published in academic journals such as Cognition and Frontiers in Psychology.

Labotka holds a bachelor's degree in anthropology and comparative human development from the University of Chicago. She also holds a doctorate in psychology from the University of Michigan.

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