Brad here…
Every year, the holidays seem to edge closer and closer and pass by even faster. This makes sense since I’m getting older and each year is a smaller percentage of my life, but I can’t help but think this effect is exacerbated by retail stores. Shelves transition seamlessly from school supplies to Halloween candy to Thanksgiving doilies to Christmas gadgets. As soon as one holiday ends, the next holiday’s sale or limited item bombards our screens and mailboxes. If we don’t act now, we’ll miss out forever. Retailers use fear of missing out (FOMO) to coerce consumers into worrying about the future holiday, consequently sucking the enjoyment out of the present. Why is it so easy to manipulate our actions using fear?
The Webb household has been on a Survivor kick lately; an addictive CBS reality show where contestants are thrown on a desert island, tasked with voting each other off one by one, with the lone survivor winning a million dollars. Each episode, contestants compete in some physically or mentally difficult challenge and the winner receives “immunity” for the night’s vote; he or she is one step closer to the goal. Inevitably, as each challenge gets difficult, host Jeff Probst offers up some tempting, delicious food. But, in order to eat, the contestant must give up his or her chance to win immunity, making it more difficult to reach the goal. Here, emotion coerces the contestant into choosing short term pleasure over long term goals. Enjoy the now or focus on the future.
This fear-based emotional fallacy manifests itself similarly when it comes to our personal finances. We’ve all come to investment island with the goal of winning financial security and stability by sticking to our plan. Just as things start to get difficult, out trot permabears with a plate full of tasty contrarianism and we all want to drop out of the challenge to quench our short term fear. “We need to get out of the market now before it crashes. I need to buy the hot tech IPO because it’s going to be huge.” I’m always surprised how quickly people get nervous after a Trump tweet or a jobs report, same as I’m stunned at how many Survivors quickly give up immunity to eat a cheeseburger.
In their simplest form, financial advisors create a plan and do their best to ensure implementation. For many years, conventional wisdom professed the best advisors created the best plans, but that’s the easy part. Sticking to it is hard. In fact, it’s so hard it’s brought behavioral finance out of the dark corners of academia onto the covers of best selling books. I recently read a large money manager announced its most recent C-suite hire: Chief Behavioral Officer. Yep, that’s a thing now. Don’t let your emotions dictate short term decisions that may adversely affect long term goals. Sticking to a horrible plan is better than deviating from a great one.
So as the year draws to a close, allow yourself to enjoy the season and all that comes along with it. Be present with your presents. Adam and I will be holed up in our office planning for the future. That’s what we’re here for!
– Brad