Falling for Financial Fads?

In my 100% polyester, off-white leisure suit with its bell-bottomed pants and extra wide lapels, I thought I was hot stuff.

My lime green nylon shirt sported a lion’s head on the back. My ensemble was made complete with platform shoes and a puka shell necklace. Oh, and I should mention my hair—blown dry and sprayed into place, so that it resembled a helmet. 

On prom night, I was a living, breathing fad as I danced to “Stayin’ Alive.”

(At least my photo from that evening has provided my children endless hours of laughter.)

What was I thinking? Who would dress like that—on purpose? 

That’s what fads are like. “Everyone is doing it!” and “it” is that trendy, buzz-generating cultural craze. 

Remember Cabbage Patch Kids, aerobics classes, Rubik’s Cubes, lava lamps, and pet rocks? They were everywhere. Then—poof!—they were gone. Because they were…fads.

Guess what. The world of finance has had its share of fads too.

  • In the early 1980s the stock market was supposedly “dead” and universal life insurance was going to make policy holders rich. 
  • By 2000, tech stocks were “destined” to keep going up. Until they didn’t.
  • In 2005, lenders were practically throwing mortgages at people with no income and terrible credit histories on the belief that home prices “always” go up and “never” fall. That is, until reality came crashing down.
  • In 2008, Wall Street learned how to bundle together junk-mortgages, call them “collateral debt obligations” and hang a AAA rating on what was really financial garbage. Until that sketchy practice brought on the Great Recession.
  • In recent years, we’ve seen the rise and fall of crypto, Bitcoin, Robin Hood, and a host of so-called meme stocks.

Financial fads (like all fads) are long on enthusiasm and energy, and short on verification or wisdom. Social media can make them go viral quickly. Especially when they promise outsized outcomes that are easy, fast, and practically certain.  

History, however, puts the lie to most financial fads.

The stock market wasn’t dead in the early 80s. In fact, it has grown from under 1,000 to over 30,000 (as measured by the Dow Jones Industrial Average). Through all the ups and downs, that’s about an 8.5% average annual return. 

The pessimism of the early 80s was replaced by the “irrational exuberance” of the late 1990s. By the time the Internet bubble burst, the NASDAQ had reached 5,000. It would fall over 60% and take 15 years to regain that loss.

To be sure, not every faddish thing is evil or illegal. As with many lies, most financial fads contain a kernel of truth. 

The real problem with these fads is that they distract you from doing what works. They tempt you instead to try something that sounds easier, faster, or more fun. Hey, next to a flashy fad, whatever is tried-and-true often feels boring! 

But the truth remains: The formula for long-term financial health hasn’t changed much in the last 100 years: 

  • Create a financial plan. 
  • Fund the plan by saving and investing enough money. 
  • Protect the plan by obtaining enough insurance. 
  • Maintain the plan by regularly revisiting and updating it.  

For many, DIY (“do-it-yourself”) financial planning is a new fad. 

Yet few people have the time to gain expertise in multiple fields. I might think I’m saving money by doing my own plumbing, wiring, legal work, or dentistry. But typically such thinking leads to frustration and greater expense. 

Getting swept up in cultural fads like leisure suits and disco dancing might hurt your pride a little. But falling for the latest financial fad can negatively impact you for years. 

If you have questions about your own financial plan, I’d love to send you my comprehensive checklist of pre-retirement questions for people who are 60-something. It’s free. Email me at bmoore@argentadvisors.com, and I’ll send it to you right away.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

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