Do people become better investors as they age? Unfortunately, no, suggests research from George M. Korniotis and Alok Kumar of the University of Texas. In fact, their study — the report is entitled Do Older Investors Make Better Investment Decisions? — found the returns of older inves-tors were about two percentage points less each year, on a risk-adjusted basis, than those of the average 30-year-old.

Although older investors’ results lagged, the study also found that many people adapt as they age. As a result, they tend to end up with more diversified portfolios, which give them some protection from sharp market declines but hurt absolute returns.

As people grow older, their cognitive abilities tend to diminish, making them less capable of picking market-beating stocks, the study’s report concludes. The result is that overall investment performance — for self-directed investors, in particular — declines fairly steadily with age.

For the study, the professors obtained access to a database from a major discount brokerage firm containing the self-directed stock holdings and trades of more than 75,000 accounts, identified only by age. The study found some other key differences along the age spectrum.

Older investors were less likely to make “all or nothing” bets on a single stock or sector, for example. Their portfolios also tended to hold significantly more stocks than those of younger investors.

The study also found that older investors took fewer risks (they favoured stocks that are less volatile and more likely to pay dividends), traded less frequently and sold losing stocks more quickly.

The report concludes that older investors probably do have more investment wisdom than those who are younger — but have difficulty applying it: “The investing principles learned over several years are likely to reside in investors’ long-term memory, which remains almost intact as people grow older. However, the effective application of those principles requires efficient information processing, which relies on investors’ attention ability and the efficiency of their short-term memory.”

All of which, the report says, suggests that older investors may be better off in mutual funds or other managed products as they age.

Stanford University psychologist Gregory Samanez-Larkin and his team took a different approach to the question of aging and investing in the paper entitled Variability in Nucleus Accumbens Activity Mediates Age-Related Suboptimal Financial Risk Taking.

For that study, Samanez-Larkin invited a group of volunteers between the ages of 19 and 85 to participate in an investment game while lying inside an MRI scanner that would track their brain activity. All participants were asked to choose between two stocks and a bond, and then were given feedback on the outcome of their choices. They then could use that information to adjust their choices in subsequent rounds.

Again, youth won out. Al-though older players received the same guidance on how their investments did, they weren’t able to process the data as effectively. When asked to revise their market views constantly, the older the person was, the more likely he or she would become confused as to which option was the best choice.

And there may be another factor at work. As we age, our brain gets more impulsive and we’re more easily swayed by our emotions. The reason, researchers say, is that many older people stop making decisions using logic; they’re driven less by numbers and logic than they are by feelings and passion, which can have a negative impact on returns. IE