We know that fear of missing out (FOMO) can drive bad decisions and behaviors, but how does that translate to dollars and cents for investors? What’s the COMO (cost of missing out) on your investment portfolio? New studies answer that question, and the news is not good.
COMO at work
COMO – cost of missing out – is the financial impact of buy high, sell low. It’s the last thing you want to do, but still it’s a very common behavior during market volatility, caused by fear and misperception, with a side order of greed.
Most recently, the 2000 dot-com bust and the 2008 Great Recession scared many investors out of stocks, selling at the lows. The impact lingers to this day. Research by Frank Stafford of the University of Michigan Institute of Social Research indicates that the share of US families owning stocks has dropped from 30% in 2001 to less than 16% today. That’s a lot of missed prosperity: anyone who sold in the aftermath of September 11 and never returned to the market has missed a 106% price climb in the Dow Industrials, (and 177% total return with dividends).
COMO and wealth inequality – yours and theirs
It gets worse. A WSJ article on wealth disparity, a socially destructive and anti-democratic condition, cites a theoretical family who starts with $100k in stocks in 2007 and holds on through thick and thin and back to thick, giving them $130k today. They’re OK. But the other family sells in early 2009 at a 50 percent loss, puts all the money in a money market fund, and has the same $50k today. What a difference! For you, add another zero or two to that second theoretical family portfolio and you have personally, needlessly missed out on $millions you could have had.
Anecdotally, I’ve heard several stories, many apocryphal I believe, of investors who “sold everything” in anticipation of the 2008 crash, thereby avoiding huge temporary losses. True or not, these stories are only half-told. I have heard NO stories of prescient investors who “bought everything” in March 2009 so they could capture 100%+ gains.
Dramatic tales of buying or selling to avoid losses or capture gains are signs of COMO. By luck you may get half the trade right, but you won’t get the buy and sell right, you’ll just get COMO. For a personal COMO calculator see Vanguard’s study on the pitfalls of market timing.
We’d all agree that COMO should be vigilantly avoided. But how? It’s really quite simple. Use these behaviors, alone or, better yet, all at once:
- Invest long term
- Diversify – own many truly different things: stocks, bonds, alternative investments
- Set your investment goals and stick to them; rebalance ruthlessly
- Avoid the temptation to time markets and predict the investment future
- Ignore the 24/7 news cycle
- Use an investment professional who practices all of the above
Sounds easy, but it takes time, willingness and ability. We can help.
John Osbon – email@example.com
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.