Last week, we asked if your friends influence your financial planning and this week we want to know if they affect your decisions about investments. A LearnVest article notes that the influence that others may have on your decisions is called “social proof.” According to the article:
“Studies have shown that, even if investors could make a good investing choice on their own, they’re led to make negative decisions if they see their peers making bad choices.”
Do you make investment decisions based on what your friends have done? Do you recognize yourself in any of the behaviors LearnVest outlines?
Following the Experts: If you stick to the advice of “talking heads and pundits” and “cherry-pick a couple of tips without following an overall strategy that’s right for you,” you might be hurting your portfolio. We know they may really have some valuable knowledge but if you misapply that expert advice or don’t realize that it will not work in your situation, you may lose money.
Following Friends: If you hear about how a friend or acquaintance made a bundle with a certain investment, you might think it would be a good idea to do the same…but remember if you hear about it after the money has been made, the investment may no longer be that hot. Factor in the human tendency to brag and you may find that your friend’s investment tips are not what they seem.
Following the Crowd: If you hear that a lot of people favor an investment, you may think that it will work for you because it worked for so many others or assume it is the right way to go because it is popular. This may not necessarily be true and you may find out too late.
Your investment decisions should not solely rely on what worked for your friends. A Fee-Only financial planner can work you in an impartial and professional manner to help you choose investments that will help you attain your financial goals.