Don’t let FOMO or a golfing buddy rule your investing decisions
| Paul Fain, CFP®
Where do you get the financial information upon which you base your investment decisions?
If we are being honest, the answer for many people is probably: a family member, a cable television show, or a magazine or newsletter. “Well Paul, you are wrong! I get my investment tips from my long-time golfing buddy, Darryl.”
Let’s be clear, the financial magazine and Darryl are promoting two facets of the same thing, fear.
- Investors have FOMO, a fear of missing out.
- Investors have a fear of losing money.
Both types of fear lead to sensational headlines on the newsstands, websites, and the popular cable programs: “The coming crash. The coming boom. Get out of stocks. Buy these stocks now. Buy gold. Sell oil. Buy crypto-currencies. Flip real estate like the pros,” and on and on.
Why are they selling fear? To get your attention. To hook you with clickbait. To sell you a product. To sell advertising on their platforms. It does not mean they actually know anything — subjected to research and academic rigor — about the market’s direction or which investments will outperform (or underperform) in the future.
Don’t get played. Invest within your risk comfort. Don’t try to time (buy or sell) the direction of a market. When things look really good (like in December 2019) take some profits (rebalance your asset allocation) because things can turn on a dime. For example, three months later, stocks looked really bad (March 2020). Our gut told us to run (sell)! Hopefully, your lizard brain did the opposite.
Most investors should diversify.
If you believe in capitalism, don’t limit yourself to only U.S. stocks. Of 46 international markets, the U.S. has been the No. 1 performer only once in the past 20 years. There are many opportunities around the world.
Don’t just buy stocks of large U.S. companies. The Dow Jones Industrial Average is just a list of stocks, originally created by Mr. Dow to sell his publication. Broader market diversification into mid-sized and smaller companies will provide greater opportunity for growth.
Oh yes, what about Darryl? His mouth may be bigger than his tee shot. It is easy to ‘spin’ numbers to make your argument look good. Always use good comparisons/apples-to-apples data. Don’t get overwhelmed by opinion masquerading as fact.
Good investing is mostly about knowing yourself, research conducted with elbow grease, lots of patience and more grit with less greed.
This article was originally published in the Knox News Sentinel on September 24, 2021