FOMO and FUD

I am looking outside my window and it is cloudy and dreary, but it is also cool, so I am fine with it. My daughter, who is away on her first solo trip with friends, is currently in Cape Cod, where the sun is shining and the day is beautiful. Looks, however, can be deceiving. Here, where it is cloudy, we are not due to have any rain, yet the Cape is about to be battered by what will most likely be Hurricane Henri by the time it hits. Of  course, as I sit her calmly writing this, the mother side of me is a nervous wreck, wondering if they should leave early, stay, go to Boston, or drive west until they are out of the projected path. I have analyzed this storm until I am practically a meteorologist and at this point, I could probably go directly to the news and give the weather report, at least for New England. Of course my daughter, who thinks this is all a great adventure, does not want to miss out on any of it, including Henri, and is telling me not to worry. Easier said than done.

Worrying is a common problem not only with traveling teens but also when it comes to investing hard-earned income. Of course, we all want to know that our money is safe and will be there when we need it, but we also do not want to be so frozen by doubt and fear that we leave it all in a sack under the bed. On the other hand, we do not want to toss our money in the air and let it land where it may, meaning that we do not want to randomly pick investments because everyone else is or because the company name sounds good. 

The Fear Of Missing Out (FOMO)

The Fear Of Missing Out, or FOMO, is a real issue and can cause people to invest unwisely. For example:

Buying stocks during the dot-com boom of the late 1990s...

Flipping houses during the real estate boom of the early 2000s...

Jumping onto the crypto bandwagon during this past year, as prices have skyrocketed.

One big problem of FOMO is that the above examples did create some extremely wealthy people. That made it easy for new investors to be drawn in, believing, illogically, that the same happy fairy-tale ending would happen to them and that they would be one of the lucky ones. Sadly, while FOMO, or in this case rash investing, has created a handful of millionaires, it has had the more common result of causing people to lose, if not their life savings, then certainly a lot of money, crushing their egos in the process.

On the other end of the spectrum we have Fear, Uncertainty, and Doubt, or FUD. This happens when people are so concerned about what could go wrong that they end up missing out on strong investment opportunities that could help strengthen their financial position. They leave their money in a checking or low-earning savings account, rather than putting it to work for them.

So we have FOMO on the one side, pushing people into investments that may well be unwise and that could lose them money, while on the other side we have FUD, keeping people out of wise investments that could offer financial reward. 
The answer to both of these problems? Research and the help of a knowledgeable financial advisor. There are two types of research that can help:

External Research: This is the research you do into the investment itself. How does it make money, what are the risks, how much cash flow will it provide, etc.

Internal Research: This is taking a look at how well the investment will fit you, personally. Does it match up with your passions, interests, knowledge, and skillset? Is the risk a fit for you? Some people are much more comfortable taking a higher risk than others and that should play into your overall investment strategy and choices.
You can do this research without a pro but that is like deciding on your own whether to ride out that hurricane. A large storm is about more than simply rain, and investing consists of much more than just stocks and bonds. People invest in such diverse areas as music, art, business, crypto, real estate, social media, jewelry, and on and on and on. An advisor with an experienced internal research team can help you do that external research, so for example if you decide you think social media is a good choice, then they can help you figure out the strengths and weaknesses of each platform. They will go further than that, however, and help you research internally as well. If you say you want to invest in social media but you despise it and never use it, then that may not be the best option for you. If you want to invest in diamonds but know nothing about them at all, then you might want to do some more learning about the gems before putting your money behind them. Basically more knowledge, both about the investments themselves as well as about yourself and your comfort level and skill set, will make you a stronger, more successful investor.

When you flesh out and understand more fully the world of investing and the specific investment options themselves, you will find that you have better control over the outcome of any investment you choose to make. Investing is not about luck and it is not about timing; it is about research, both external and internal, and then choosing wisely. An educated financial advisor, one who is a fiduciary, can help you do this and will take your interests to heart. Then you can feel confident that you are making the right choices and can ride out any storm in a very strong, well-designed port. 

In this week's articles, I have added one about FOMO and its social implications. Learn how to say no to invitations and other social requests. It is okay! Have a nice weekend!

Warmly,

Kimberly Wolf and Your Team at Pacific Financial Advisors