"Where we all think alike, no one thinks very much." -Walter Lippmann
Sometimes following the crowd makes sense. Like when everyone agrees to stop at red lights or when there's a fire inside a building and everyone is making their way toward the exit.
Other times it makes no sense at all – like when it comes to investing your hard-earned money.
Most Americans invest in stocks and bonds. Sure, some do this intentionally, with a clear strategy and long-term goals in mind. But most do it ... because it's what "everybody" else is doing.
It's called groupthink, and it can be dangerous.
Case in point: The Great Recession. When it happened back in 2008, the Great Recession essentially turned 401(k)s into 201(k)s. And because the vast majority of professionally employed Americans rely on their 401(k)s for retirement savings, the vast majority of working Americans lost money.
Which is why sometimes it's better not to follow the crowd.
Need more proof? Check out three reasons why you should think for yourself when it comes to investing:
1. Following the Crowd Can Be Dangerous
You wouldn't dart out into the street without looking both ways, would you?
That's essentially what you're doing when you blindly dump money into the stock market by relying on advice from unknown managers without doing your own due diligence. You're not thinking for yourself, and you might suffer a painful financial smack.
Successful wealth management cannot be achieved passively or by relying on others.
2. Hype
Let's say you have a solid wealth management strategy, you're engaged, and you're working with a trusted and known financial adviser.
Then let's say everyone gets incredibly excited about the next big IPO. The headlines and the hype about the next big company have investors in a frenzy.
Why wouldn't you follow the crowd and get in on the action?
Two words: Tech bubble.
Remember Pets.com, eToys.com and Kozmo.com, which promised to deliver movies, CDs, food and more to your doorstep? Each of these companies raised hundreds of millions of dollars – and then quickly went bust.
Throngs of investors loved them, threw money at them and got burned. Because of the hype. The hype (and the crowd) blinded their ability to make solid investment decisions.
3. Uncertainty
Is it a blip or a trend? Will the decisions made by a government 12,000 miles away cause a stock market crash? What if the hurricane hits?
Your wealth management strategy will always have to account for uncertainty, but unpredictability should not drive your investment decisions.
Unfortunately, uncertainty is a daily reality when it comes to the stock market. A simple tweet, an international incident, or a natural disaster seem to always be right around the corner.
And that's why the crowd often tends to make irrational decisions.
But if you break away from the pack and take your own path – if you leverage the relative calm of alternative, non-correlated investments – you can stay your own course and live with more certainty.
Not everyone is brave (or smart) enough to include alternative investments in their wealth management strategies. But those who invest in life settlements, become their own bankers, or leverage the cash flow associated with bridge loans often experience less risk and greater returns.
Blaze Your Own Trail with Smart Assistance
If you're ready to break free from the crowd and make decisions about your wealth management that make sense for you, connect with us today.
You'll lead the way and we'll provide advice that is tailored to your specific needs.
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