Nancy Graham January 3, 2019 Behavioural Finance The “Best of No Dumb Questions” SEASON FINALE: Investment Envy I hope you’ve been enjoying our “Best of No Dumb Questions” collection, launched in honor of November’s Financial Literacy month. Alas, all good things must come to an end. Today, I wrap our “Best of” series by revisiting one of our most important NDQ videos to date. When it comes to your investments, do you ever find yourself wondering something like, “Hey, what have they got that I haven’t?” If so, beware. Disappointing market returns aren’t necessarily the biggest threat to your wealth. Your own missteps can cause the worst damage, especially if you succumb to a “disease” I call investment envy. Investment Envy: A Common Ailment Investment envy is an extremely common condition, so don’t feel too bad if it happens to you. There’s a behavioral psychology term that applies to the condition as well. It’s called “FoMO,” or Fear of Missing Out. One study describes FoMO as “the uneasy and sometimes all-consuming feeling that … your peers are doing, in the know about, or in possession of more or something better than you.” The same study also suggests, by the way, that social media is exasperating our FoMO tendencies to obsess over what other people are having or doing, instead of focusing on our own well-being. So how does FoMO play out where your investments are concerned? It sets in when your friend, neighbor, family member or some talking head starts bragging about their most recent financial score. Maybe they made $1 million overnight by buying up some bitcoin. Or they invested in their brother-in-law’s private venture which is now paying off handsomely. Maybe they’re so glad they got out of the market after “everyone said” it was time for a breather. Or they love the cannabis stocks they loaded up on recently. Or … You get my drift. Almost everybody has a success story they love to tell about how they got wise with an investment. Investment envy, or FoMO, leaves you wondering if you should get wise too. Next thing you know, you’re questioning whether your own investments are good enough or fast enough for you. Other than maybe some emotional unease, there’s no lasting harm done if all you do is question your existing plans. The trouble begins if you act on your uncertainty for the wrong reasons. That is, if you abandon a well-planned and tightly structured investment portfolio and start chasing after other people’s outcomes. Before you succumb to investment envy, remember these two points: You Probably Aren’t Hearing the Entire Story As I mentioned above, almost everybody has a success story to tell. You probably have one or two of your own. Now, be honest. When you relate that time you did so well, do you also tell your audience about that other time? You know the one I’m talking about: When your cousin’s hot stock tip about buying into his forest product firm came just before the bottom fell out of the timber industry? The point is, when you hear about other people’s financial “wins,” you’re probably not hearing about the many losses they’ve also suffered over the years. Will they really do better than you over the long haul? Only time will tell. Their Story Isn’t Your Story Then again, maybe there are no bad-news tales to tell. Maybe your friend or your neighbor’s sister actually has made a fortune putting money into this or that venture. But remember how investing – and life – really works: The more risks you’re willing to take, the more rewards you can hope to reap. But, as the familiar saying goes, the harder you may fall, as well. In short, other people’s winning ventures may be fine for them. But they may be an awful idea for you. Others may have come out ahead by taking on far more risk than would be appropriate for you and your financial goals. Their risky bid may have paid off for them, but it could just as well have ruined them. By increasing your investment risk exposures to compete with theirs, you’re playing their game instead of your own. You also may be playing the equivalent of Russian roulette with your money. Your Plan Is Your Cure The cure for investment envy isn’t flashy or dramatic, but hopefully it’ll protect you against any rash trades the next time you’re feeling the itch. Form a detailed investment plan that describes the level of market risks and expected returns you’d like to build into your Write it down; maybe even sign it. Think of it as a pledge to yourself. Build your investment portfolio according to your plan, employing sensible strategies and tools that are most likely to help you stick to your plan efficiently and cost-effectively. Over time, whenever you’re tempted by investment envy, FoMO, or any other emotional response to the market’s many moves, remember your pledge. Have your goals or circumstances changed? If so, then it may be appropriate to judiciously revisit your plans. Otherwise, your best course in an uncertain market is probably the one you’ve already established. Stick to your plan; that’s why you created it! Next Up: A Fresh Batch of “No Dumb Questions” Again, I hope you enjoyed this season’s “Best of No Dumb Questions” Collection. As we share a freshly baked batch of NDQ videos throughout the year ahead, be sure to let me know what other queries you’ve got in mind. And don’t forget to stay informed by subscribing to my YouTube channel. My pledge is to continue offering up tasty new insights for you to digest. Share: Facebook Twitter LinkedIn Email CIRO Advisor Report