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Chapter 10. The Social Investor > The Friends You Keep

The Friends You Keep

There is an old saying that you can be judged by the friends you keep. But does your social group affect your wealth? The answer appears to be yes. People in a peer group tend to develop the same tastes, interests, and desire to live similar lifestyles. Peer groups develop social norms according to the preferred beliefs of the group. Newcomers to the peer group discover these social norms through conversations and by watching the actions of others. Beliefs about investing are also a part of these social norms. In a peer group where investing is not valued, the conversation will rarely (if ever) turn toward investment topics. Another peer group may frequently discuss stocks. The environment you are in impacts your investment decisions. For example, if your peer group talks frequently about their day trading experiences, you are more likely to try it. If your peers talk about international stocks, you may also tilt your portfolio internationally.

One common example is participation in your 401(k) retirement plan (or other contribution plan). Do you contribute? All investment experts say that contributing to your retirement plan is the wise decision, even if your employer doesn't match your contribution. If the employer contributes too, that is even better! Yet many (even most) people do not participate. Education and wage levels are a determinant of participation in the 401(k) plan. However, the social norms of employees also impact the participation decision.


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