Did you ever felt left out of the conversation just because you haven’t watched the movie or series or have missed out reading the bestseller book? So next time when the next installment or the next season or the next edition arrives you don’t want to miss out this time and so you are very hyped about getting or watching it as soon as possible. This modern-day fear called FOMO – Fear of Missing Out. You just don’t want to be left out from the conversation of the hot topic around. There is so much hype around you and sometimes even if you didn’t plan to involve yourselves, now you want to with just out of fear of being left out, so there comes an unwanted expense or purchase.
This modern-day FOMO can be linked to Herd Behaviour in Behavioral Finance. Herd Behaviour is a much bigger problem in Behavioral Finance. Investors very often make this mistake while investing their hard-earned money following what everyone is doing. Mutual Funds today are such hyped product (on a FOMO basis or on Herd Behavior Basis)
I am not of the opinion that Mutual Funds are not good, I rather believe that the reputation of Mutual Fund is made worse. Following the herd, people will invest in the most popular Mutual Fund scheme, and when this scheme turns out to make losses they are convinced that Mutual Funds are bad. It is only for people who want to take risks. But while they will be investing their money they will be like everyone is doing it. It should be right and correct to invest. If everyone is doing it, there is no harm, right? If everyone is Investing in an Investment product be it a Mutual fund or shares of a company or even FD of a bank that offers attractive interest rates, it should be good, I must also invest in it to gain money. I am just mentioning Mutual Funds because currently, it is the hyped product. Likewise, it can be any investment product even Ponzi Schemes.
But let me stop you right there, a medicine prescribed to your daughter might not always cure you. In worst-case scenarios, it might even develop a side effect. Whether or not an investment product is beneficial to you will depend on your risk profile, your capacity to take risks. You might get wooed by an investment product that is offering high returns but this also comes with high volatility, high risk either or together. You might not be able to sustain a sudden fall in the value of the product and might exit it before it recovers and book loss and develop a perception that, "Investment is not my cup".
So why does it happen? Why do we get wooed by such very easily? It is just because we are emotional beings. We get easily persuaded by schemes whenever a name we know gets attached to it. If someone informs you, “The neighbor of yours, Mr. A also invested this much” and this is what ends the deal here. If we know someone who has invested in the same scheme or product, the same becomes safer for us. We don’t need another reason for investing.
"If they did it, they might have thought about it and if it was good then only they might have invested in it".
But always remember, you consult your doctor before taking any medication, you just don’t take the medications suggested to another person. Always consult a Financial Advisor or Investment Advisor when making decisions about Investment. Financial Planning is as much necessary as it is to consult a doctor during illness, take legal advice from a lawyer. Get your risk profile assessed today and get to know what products are suitable for you. Feel free to drop a message or mail to us in case of any queries or suggestions. We at Your FinMan are determined to light up the dark road in Personal Finance. See you next week, till then this is Shreyans Shah signing off.
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