Fear, Uncertainty and Doubt (FUD) is a tactic used in sales, marketing, public relations, and politics. Since fear and negativity sells, no headlines ever announce: “Another Jetliner Lands Safely!” With the steady stream of negative news, we can easily become sitting ducks for the FUD factor.
It becomes harder to differentiate between fact and fiction, especially if a TV commentator is one you respect and watch regularly. If you’re alert, you may even spot hidden suggestions meant to sway your opinions about buying, selling, or voting.
When it comes to investment decisions, fear should never be the driving force. According to Nationwide Insurance’s research, the three most common financial fears are another financial crisis, the inability to finance children’s education, and healthcare costs becoming unmanageable.
Here are four FUD stumbling blocks to avoid.
- Status-quo. Since we are naturally wary of change, we cling to our comfort zones out of fear of the unknown. Making choices that maintain the status quo, means we may miss opportunities.
- Negativity. Since negative fearful news is so ubiquitous, we begin to believe that’s it’s more important than positive news. The expectation of negative outcomes affects our ability to access risks, and frequently causes us to overreact with preventative action thereby making unwise and potentially costly decisions.
- FOMO. The Fear of Missing Out triggers herd mentality. When the first dotcom bubble formed with it’s lure of easy money, many investors lost, not just their perspective, but eventually, a lot of money. Just because “everybody” is investing in something does not mean that it’s right for you.
- Fear of Losses. This is the tendency to sell things when they go up in price, but hold onto them when they go down. It’s natural to want to avoid losses and is seen frequently in stock market trading. If you’ve tenaciously held on to a dying tech company, your fear of suffering losses may have kept you invested in what has become a very risky situation.
Fear, uncertainty, and doubt are paralyzing and work against our own best interests. Markets will continue to ebb and flow over time. Your best friend is time.
Which brings me to another important acronym: TVM – Time Value of Money.
This refers to the fact that money available at the present time is worth more than the same amount in the future. Assuming that today’s money can earn interest, any amount of money is worth more the sooner it is received. Which is a reminder of another acronym, (which I just now made up for you): IE - Invest Early!
To Overcome FUD:
Fear: Don’t be paralyzed by fear. Follow a financial plan that provides savings and investment. Pay attention to cash flow and limit spending on things that don’t appreciate.
Uncertainty: Learn about investing through books, classes and ask questions of your financial advisor.
Doubt: Question other people’s opinions or financial motives. Develop your own money muscle and sort out truth from fiction.
Warren Buffet: “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.” Mr. Buffet believes is that there is opportunity for investment when people are selling out of fear, and danger when everyone likes a particular investment (gold, real estate, oil, stocks…all can be too popular and overbought). It is an investment for value or speculation?
He sums these ideas up with a simple quote, "Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down."
Once we get to know and understand something, our fears are brought into perspective. Books can help, and so can many websites (though the opposite is true for some resources.)
A financial advisor can be invaluable if you need help avoiding behavioral traps or making and sticking to portfolio decisions. They can help temper not only fear, uncertainty, and doubt, but also the opposite extreme of euphoria and exuberance when making financial decisions.
The material is being provided for information purposes only and s not a complete description, nor is it a recommendation. Any opinions are this of Judith A. McGee and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does no guarantee that the foregoing material is accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.
Judith A. McGee is the chair and chief executive officer of McGee Wealth Management, Inc., an independent registered investment advisor. She is a co-branch manager of, and offers securities through, Raymond James Financial Services, Inc. (Member FINRA/SIPC) in Portland. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision. Any opinions are those of Judith A. McGee and not necessarily those of RJFS or Raymond James.