Herd Instinct in Australian Finance: Crowd Psychology & Your Money

Ever noticed how the property market seems to heat up just as your mates start talking about buying in? Or how a surge in ASX share prices makes headlines, only for everyone to pile in at once? That’s herd instinct at work—one of the most powerful, yet under-appreciated forces shaping Australian financial behaviour in 2025. Understanding this phenomenon can mean the difference between riding the wave and getting caught in the wash.

What Is Herd Instinct—and Why Does It Matter?

Herd instinct is the psychological tendency for individuals to mimic the actions of a larger group—often without independent analysis. In finance, this plays out in markets, property booms, and even superannuation choices. While following the crowd can sometimes lead to gains, it often results in missed opportunities, bubbles, or avoidable losses.

Recent research from the Australian Securities and Investments Commission (ASIC) shows that retail investors continue to be heavily influenced by social trends and peer behaviour. In 2025, with financial news and social media more accessible than ever, the risk of herd-driven mistakes is rising.

• Property FOMO: Fear of missing out on rising property prices leads to rushed buying decisions and bidding wars, even as regulators warn about overvalued markets.

• Share Market Surges: ASX sectors like tech and renewables have seen sudden inflows as headlines tout record highs—often just before corrections.

• Crypto Craze: Despite recent regulatory crackdowns, Australians continue to flock to digital assets when friends or influencers signal it’s the ‘next big thing.’

Real-World Aussie Examples: Herding in Action

Australia’s financial history is peppered with moments where herd instinct changed the game—sometimes for better, often for worse.

• The 2020–2021 Property Boom: Ultra-low interest rates, government incentives, and a flood of buyers triggered a frenzy. CoreLogic data showed median house prices in Sydney rose by over 20% in just 12 months, with many buyers citing friends’ purchases as their motivator.

• Superannuation Switching: In the 2022 market downturn, APRA reported a spike in Australians switching super funds or moving to cash options, often just after losses were realised—locking in poor returns. Many later regretted reacting to short-term crowd sentiment.

• ASX Penny Stock Rallies: In early 2025, several small-cap mining stocks surged after trending on local finance forums, only to plummet weeks later as the hype faded.

The lesson? When everyone is running in one direction, it pays to pause and consider whether the fundamentals support the stampede.

Herd Instinct in 2025: Policy Shifts and What’s Changing

Regulators are increasingly aware of the risks posed by herd behaviour. This year, ASIC updated its guidelines on ‘finfluencer’ activity, cracking down on unlicensed advice that can trigger mass buying or selling. Meanwhile, the RBA’s interest rate decisions and APRA’s lending restrictions are now more closely scrutinised for their impact on group psychology.

Key 2025 developments include:

• Mandatory Risk Warnings: Platforms offering shares, crypto, or property syndicates must display clear risk statements about the dangers of following crowd sentiment.

• Enhanced Investor Education: The federal government launched new programs in early 2025 aimed at helping Australians spot herd behaviour and make more independent decisions.

• Increased Data Transparency: Real-time market data is now more widely available, making it easier to see when volumes or prices are moving abnormally—often a sign of herd activity.

How to Outsmart the Herd: Practical Strategies

You don’t have to swim against the current in every situation, but being aware of herd instinct can help you avoid costly mistakes. Here’s how:

• Set Clear Investment Goals: Know what you want to achieve and stick to your plan, regardless of market noise.

• Do Your Own Research: Rely on credible sources and your own analysis rather than following what’s trending.

• Beware of FOMO: If you feel pressure to act quickly because ‘everyone else is doing it,’ take a step back and reassess.

• Diversify: Don’t put all your eggs in one basket just because a single asset class is hot.

• Use Stop-Losses and Exit Plans: Protect yourself from dramatic swings by having clear rules for when to sell or rebalance.

Conclusion: Make the Crowd Work for You

Herd instinct will always be part of the financial landscape, but in 2025, Australians have more tools than ever to spot and resist the pull. By understanding the signs of crowd-driven behaviour—and choosing when to follow or break away—you can build a more resilient financial future. Don’t let the herd decide your next move; make decisions with confidence, strategy, and your long-term goals in mind.