When it comes to investing, we humans can't help but get in our own way. In fact, the very traits that have allowed us to survive and thrive as a species can make us bad investors. Let's discuss how following the herd might be detrimental to financial freedom.
Imagine we are in a crowded auditorium and the fire alarm is pulled, causing everyone to run en masse to the nearest exit. Herd behavior can save our lives. We did not examine the room for smoke before running out; we simply followed the group.
Consider an investor who hears messages of gloom and doom about the financial markets on television, in the newspapers, and on social media. Human nature drives us to jump on the bandwagon and sell when the market is down, whereas a successful investor does exactly the opposite.
We humans can't help being wired to follow the herd and have great fear of missing out or being left behind. This anxiety real; in fact, the acronym FOMO (fear of missing out) is so widely accepted that it's defined in the Merriam-Webster dictionary.
It's hard to tune out the fear inducing messages propagated by the media. But remember the media is a trillion-dollar industry that makes money through advertising. The more people that view a message, the higher the potential advertising dollars. Fear is a way to capture more viewers. Prudent financial advice is not.
Many investors feel they have the capacity to remain immune from this herd behavior. (Please see my fourth post on overconfidence.) Unfortunately, no one is immune. Herd mentality is deeply rooted in our brains; it appeals subconsciously to our survival instincts.
Instead of succumbing to FOMO in your portfolio, work with an advisor who can align your assets with your goals and increase your probability for success. Through the planning process, your desired objectives can be back tested through good markets and bad markets alike. This periodic process creates peace of mind knowing that: you're still on track to achieve financial independence or adjustments need to be made when necessary.
Nicole Gopoian Wirick, JD, CFP® is the President of Prosperity Wealth Strategies, a business she founded to focus on providing a high touch, concierge style approach to financial planning. Call today to explore how she can help you achieve prosperity.