Real-world examples of self-control issues in long-term investing

Real examples of self-control issues in long-term investing

When people think about risk in investing, they usually think about volatility or recessions. In reality, one of the biggest risks is you. The best examples of self-control issues in long-term investing show up not in textbooks, but in brokerage statements and 401(k) histories.

Consider three recurring patterns:

• An investor vows to “never sell in a crash,” then dumps everything at the bottom.
• A long-term saver keeps raiding retirement accounts for short-term wants.
• A disciplined index investor suddenly bets big on a hot sector after seeing friends get rich.

Each is an example of self-control failing at the exact moment it matters most.

Behavioral finance research from places like the National Bureau of Economic Research and leading universities has been documenting these patterns for decades. The twist in 2024–2025 is that technology—especially mobile trading apps and constant financial news—has amplified the temptation to act on every impulse.

Let’s walk through detailed, real examples of self-control issues in long-term investing and what they teach us.

Panic selling during market crashes: the classic example of self-control failure

One of the clearest examples of self-control issues in long-term investing is panic selling during a market downturn.

Imagine an investor, Maya, 42 years old, maxing out her 401(k) in a diversified target-date fund. She tells herself she’s investing “for the next 20+ years.” Then a sharp correction hits. Her balance falls 20% in a few weeks. Financial media runs headlines about recession risk, layoffs, and “the worst market in years.”

Maya’s plan says: do nothing.

Her emotions say: get me out.

She sells everything, moves to cash, and tells herself she’ll “get back in when things calm down.” Of course, the market stabilizes and then recovers faster than her emotions do. She re-enters months later, after missing a chunk of the rebound.

Behaviorally, this is loss aversion and myopia teaming up:

• Loss aversion: Losses feel roughly twice as painful as equivalent gains feel good.
• Myopic loss aversion: Looking at short-term losses in a long-term plan magnifies that pain.

Research from the Federal Reserve and academic studies on 401(k) behavior show that many investors who moved to cash during the 2008–2009 crisis or the 2020 COVID crash took years to fully reinvest—if they ever did. The long-term cost of that self-control failure can easily exceed any benefit of “avoiding” a decline.

Chasing hot stocks and sectors: when FOMO hijacks long-term plans

Another powerful example of self-control issues in long-term investing is performance chasing—abandoning a diversified plan to pile into whatever has recently gone up the most.

Think about the late stages of any boom:

• Tech stocks in 2020–2021
• Meme stocks in 2021
• Crypto surges in multiple cycles

An investor who has been patiently buying broad index funds suddenly sees friends doubling their money in a few months. Social media feeds are full of screenshots of gains. The long-term plan starts to feel boring and “too conservative.”

So they:

• Sell part of their diversified portfolio
• Concentrate in a handful of hot names or a single theme ETF
• Rationalize it as “just a small tilt” even when it materially changes their risk

When the cycle turns, they’re left with big losses and a shaken belief in investing at all.

Behaviorally, this blends:

• Present bias: Overvaluing quick wins versus slow compounding
• Overconfidence: Believing recent success reflects skill, not luck or a bubble

Morningstar’s “investor return” studies (which compare fund returns to what investors actually earn) consistently show that investors tend to buy after strong performance and sell after weak performance, hurting their long-term results.

Raiding retirement accounts: short-term relief, long-term damage

A quieter but very common example of self-control issues in long-term investing is tapping retirement savings for non-emergency spending.

Picture Alex, 35, with $80,000 in a 401(k). He’s on track for a solid retirement, but he’s also eyeing a bigger house and a new SUV. Instead of adjusting expectations or saving more over time, he takes a 401(k) loan and later a hardship withdrawal.

On paper, it looks manageable. In practice:

• He stops contributions while repaying the loan
• He misses employer matches
• Withdrawn funds miss years of tax-advantaged compounding

The math is brutal. A \(20,000 withdrawal in your 30s can easily mean \)80,000–$100,000 less in retirement, depending on returns.

This is classic time inconsistency: your current self prioritizes comfort and lifestyle today, while your future self silently absorbs the cost.

The U.S. Department of Labor has repeatedly warned about the long-term impact of 401(k) loans and cash-outs, especially when people change jobs. Yet in every downturn or job shift cycle, we see another wave of investors taking short-term relief from long-term accounts.

Overtrading in apps: the modern, app-based example of self-control problems

Digital trading platforms have made investing more accessible, which is good. They’ve also made it far easier to act on every twitch of fear or greed, which is not.

One of the best examples of self-control issues in long-term investing today is the investor who turns a retirement or brokerage account into a day-trading sandbox.

Patterns often look like this:

• Checking portfolio values multiple times per day
• Trading based on notifications, social media posts, or trending tickers
• Constantly switching funds, sectors, or factor tilts

A 2021 study by the SEC’s Office of the Investor Advocate highlighted concerns about “digital engagement practices” that nudge users toward more trading. Academic research going back to Barber and Odean’s work at UC Berkeley shows that frequent traders, on average, underperform less active investors after costs and taxes.

From a behavioral finance perspective, overtrading is a self-control issue wrapped in a user interface. The app is designed to make action feel good and inaction feel lazy, even though long-term investing usually benefits from the opposite.

Lifestyle creep and under-saving: the invisible self-control problem

Not all examples of self-control issues in long-term investing show up as dramatic trades. Sometimes, the failure is simply not investing enough in the first place.

This often happens through lifestyle creep:

• Income rises over time
• Spending rises just as fast (or faster)
• Savings rates stay flat or even decline

An investor might tell themselves they’ll “increase contributions next year,” but next year always brings new expenses: travel, kids’ activities, home upgrades, subscriptions. The long-term portfolio never gets the fuel it needs.

Behaviorally, this is another form of present bias and mental accounting. Future retirement is an abstract, distant account; today’s spending feels concrete and justified.

Surveys from the Federal Reserve’s Survey of Household Economics and Decisionmaking repeatedly show that a large share of Americans are not on track for retirement, even among higher earners. The math is less about market returns and more about consistent, disciplined saving.

Drifting away from an investment policy: when “just this once” becomes the norm

Many serious investors create an Investment Policy Statement (IPS) or at least a written plan: target asset allocation, rebalancing rules, contribution schedule, and what to do (and not do) during volatility.

One subtle example of self-control issues in long-term investing is the gradual erosion of that policy.

It rarely happens in one big leap. It looks more like:

• Skipping a rebalance because “markets are too uncertain right now”
• Making a “temporary” allocation change that never gets reversed
• Ignoring the written rules when markets are euphoric or terrifying

Each small exception feels harmless. Over time, the portfolio no longer resembles the original plan. Risk drifts higher or lower, return expectations shift, and the investor is effectively winging it.

This is where self-justification and confirmation bias creep in. Investors selectively seek information that supports what they already did, making it harder to admit a self-control lapse and course-correct.

Long-term investing vs. short-term trading: identity confusion as a self-control issue

A more subtle but very real example of self-control issues in long-term investing is identity confusion: saying you’re a long-term investor but behaving like a trader.

You see this when someone:

• Claims a 20-year horizon
• Still checks prices every hour
• Evaluates decisions based on one-month or one-quarter performance

This mismatch creates constant psychological friction. Every short-term move in the market feels like a verdict on your choices, which makes it harder to sit through normal volatility.

Behavioral finance research often talks about narrow framing—evaluating outcomes in small, isolated windows instead of in the context of a long-term plan. The more narrowly you frame your results, the more self-control you need to avoid reacting to noise.

One of the best examples of a fix is the boring, old-school approach used by many institutional investors: quarterly or semiannual reviews, with clear rules about what triggers action and what doesn’t.

How to build guardrails against self-control issues in long-term investing

Knowing the best examples of self-control issues in long-term investing is useful only if it leads to better behavior. The goal isn’t to become perfectly rational; it’s to design systems that protect you from your future, emotional self.

A few proven tactics:

Automate good decisions

• Automatic contributions to retirement and brokerage accounts
• Automatic increases in contribution rates when you get raises

Pre-commit in writing

• A simple, written investment plan: target allocation, rebalancing rules, and what you will do in a 20%, 30%, or 40% drawdown
• A “cooling-off” rule: no major allocation changes within 48–72 hours of a big market move

Limit temptation and noise

• Fewer logins: check long-term accounts monthly or quarterly, not daily
• Turn off non-critical trading notifications

Use accountability

• A financial advisor or informed friend who can challenge impulsive decisions
• Even a short written memo to yourself explaining any major change can slow you down enough to avoid an emotional mistake

For more on the psychology behind these ideas, you can explore resources from institutions like Harvard Business School and behavioral research organizations that study investor behavior.

The point isn’t moral perfection. It’s practical design: making the long-term, rational choice the default, and forcing your emotional, short-term self to work harder to override it.

FAQ: examples of self-control issues in long-term investing

What are some common examples of self-control issues in long-term investing?
Common examples include panic selling during market crashes, chasing hot stocks or sectors after big run-ups, raiding retirement accounts for non-emergency spending, overtrading in mobile apps, and failing to increase savings as income rises. Each reflects a moment where short-term emotion beats long-term intention.

Can you give a simple example of self-control failure in a 401(k)?
A typical example of self-control failure is stopping 401(k) contributions and taking a loan to fund a home remodel or vacation, telling yourself you’ll “catch up later.” In reality, you lose employer matches and compounding time, which can significantly reduce your retirement balance.

Are all changes to an investment plan examples of poor self-control?
No. Adjusting your plan because your goals, time horizon, or risk tolerance have truly changed is reasonable. The problem is reactive changes driven by fear, greed, or short-term performance—those are the examples of self-control issues in long-term investing that tend to be most damaging.

How do I know if I’m overtrading instead of investing?
If you’re frequently checking prices, reacting to headlines, and making multiple trades per week in accounts meant for long-term goals, you’re likely crossing into overtrading. Research from regulators and academics shows that frequent trading often leads to lower net returns after costs and taxes.

What’s one practical way to reduce self-control problems in my portfolio?
Automate as much as you can—contributions, rebalancing, and even escalation of savings rates. Then pair that with a written plan that spells out how you’ll behave in different market conditions. That combination makes it much harder for a single emotional moment to derail years of disciplined investing.