What does the Dow reaching its 100th record high signify?

The Dow reaching its 100th record high under the Trump administration indicates significant growth and investor confidence in the stock market, potentially leading to increased excitement and optimism about future gains.

How can the fear of missing out (FOMO) affect investment decisions?

FOMO can cause investors and advisers to abandon previously established risk management strategies in favor of chasing higher returns, which can lead to poor decision-making and potential losses.

Why is diversification important in investment portfolios?

Diversification helps manage risk by spreading investments across various asset classes, reducing the impact of poor performance in any single investment. This is especially crucial for those nearing retirement to protect their savings.

What are the risks of abandoning protective measures in a portfolio?

Abandoning protective measures can lead to significant losses, particularly during market downturns. Historical examples show that investors who disregard risk management may suffer substantial setbacks just before retirement.

The Fear of Missing Out

The Impact of Record Highs on Investment Behavior: The FOMO Phenomenon

On November 26, it was announced the Dow set its 100th record high under the Trump administration leadership. News like this helps fuel the excitement about gains made in the stock market and anticipated gains in the future. With investments climbing higher and higher, it is easy to get caught up in the emotion called the fear of missing out.

Stock market excitement often emboldens advisers and their clients to discard many of their previously held guardrails of protection in client portfolios to participate in higher returns.

In the 1990’s the stock market just kept going higher and higher. I was fired in 1998 by a client because his portfolio only returned 32% and he was upset. His 401(k) account was invested in technology mutual funds and it returned 50% over the same period. I tried to explain the importance of diversification and risk management, but he didn’t care. The fear of missing out removed all protection in his 401k because of the allure of higher returns. Two years later when the recession hit, he lost half his portfolio and he was only two years away from retirement. His long-anticipated dream of what retirement would look like totally changed.

The underperformance of a portfolio that accompanies certain risk-managing measures, is the price we pay to avoid out-and-out ruin in the long-term. This is especially true for those closer to retirement and those already in retirement.

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