MANY LONG-RUNNING SITCOMS usually have an episode where one character gets turned on to a can’t miss “investment,” usually based on FOMO (fear of missing out) or YOLO (you only live once) even if those terms are not used. They inevitably buy in despite other characters warning them about risk.

A couple of scenes later, the price has soared, and the speculating character appears happy as can be with a new suit, car, fur coat, boat or some other overt display of their new wealth. By the end of the episode, the price of whatever the “investment” was crashes back to earth and things return to normal. The emotional roller coaster can make for good comedy, but in real life it isn’t so funny.

If the story line is so common, cliché even, why do so many people fall victim to the speculative bug? In short, they are overestimating the odds of success or underestimating the impact of being wrong.

Whether one was flipping houses with zero down mortgages before the financial crisis, day-trading tech stocks in the late ’90s or buying tulip bulbs long before that, assessing the odds is a daunting task. In 2021, you can scratch the speculative itch right from your phone, and a whole new generation is breaking out in a rash with things like cryptocurrencies, meme stocks and NFTs.

These things could prove to be “investments,” but the way most people seem to approach them, I have to call them “speculations.” Too many people don’t know what they are buying and are jumping in because they view it as fast, easy money and they are swept up in the lure of a rapidly rising price.

I’m not writing today to explain why many believe that bitcoin at $60,000 is a bubble or why others think $60,000 is a steal because the cryptocurrency is the next big thing. Instead, my goal is merely to remind financial planners that there is a huge difference between real investing and the speculating that is running rampant—and that you must have a plan to deal with the urge to speculate when it arises. It surely will at some point.

Investing is a reliable way for anyone with patience and discipline to build and preserve wealth over time. Speculating typically creates wealth only for casino owners, sitcom writers and a lucky few others.

I know that is harsh. Don’t get me wrong. There is a place for speculation. Nonetheless, I believe most anyone with realistic expectations should be able to achieve their financial goals through true prudent investing and simply do not need to find the next big thing to succeed.

Still, planners must learn to deal with clients tempted to speculate. I have found the best way over the years is to just nip it in the bud: When you talk with new clients about the difference between investing and speculating—and why we choose to be investors instead of speculators—you weed out those too prone to FOMO or YOLO and to chasing what’s hot. Regularly reminding clients of the differences helps them remember why they chose to be investors, reject speculation and recommit to their investment policies, and it also prevents them from placing bets with their life savings.

If their overconfidence is just too much, you can explain the consequences of their being wrong. Sane people do not play Russian roulette even though there is a greater than 83% chance they’ll win. The penalty for being wrong, death, is just too extreme.

From a financial standpoint, one does not want to place so big a bet on a speculation that it endangers their financial security. Those who make a wager with too much of their portfolio are possibly looking at ruin.

Once clients consider a proper limitation on the size of their bet, they tend to be more open to the idea that, if it does work out, it may not be as impactful as they had fantasized. If it isn’t necessary and won’t be life altering because they are only putting a small percentage at risk, what’s the point? Entertainment? I think they are better off in Las Vegas, where at least they know the odds and payouts. Most of the time clients realize it is just FOMO or YOLO and move on.

Of course, despite our efforts, sometimes clients just can’t get the idea of taking a flyer out of their heads. What should financial planners do then? I see three main approaches. You can fire the client, help them place their bet or have them bet on their own.

I work for clients. My job is to advise, not dictate. Ultimately it is their money, and they have every right to do as they please. So it is rare that I would end a relationship with clients if they wanted to speculate. But I won’t be a party to someone endangering their financial security.

Fortunately, in 30 years, I only attempted to cut ties with a client once. He wanted to load up on a stock. When I told him I couldn’t watch him unnecessarily put a lifetime of work at risk, he saw my request as a warning sign, opted not to take the big bet and remained a client.

It should come as no surprise that since he was willing to bet most of his life savings on the stock, he was still hell-bent on buying some shares. My choice was to help him or have him do it on his own.

Most planners don’t want to get mired in a speculation. It is nearly inevitable that once a client begins doing it, they will spend extra time worrying about it. That can mean lots of questions about whether it is time to get out of an investment or questions about the details of the holding that the planner wouldn’t have put the client in to start with.

For these and other reasons, I know a lot of planners whose clients open side accounts. The theory here is that the damage can be controlled by limiting how much goes into the account, and the clients can then “play” the markets any way they like. I do not care for this approach, especially when the play account is taxable.

Early in my career, I was much more open to play accounts. Unfortunately, in too many cases, the activity in them triggered taxes that mucked up our planning. I can stomach a play account in a small Roth IRA or something similar, but it still nauseates me.

After enough failures, you realize that even if there is good communication between the planner and the client, having clients play in those side accounts makes things very difficult, undermines good strategic planning and makes a short-term focus far more likely. It is a slippery slope away from the solid track record of sound financial planning and prudent long-term investing and toward gambling.

Nowadays, when clients insist on speculating, I will get the appropriate acknowledgments and sign-offs from them about the risks and then acquire what they want through our systems. I still have to manage the psychology, but at least there are no surprises when the 1099s arrive.

Regardless of how a client ends up buying whatever it is they want to buy, I always take the time to have a “results talk.” I tell them that losing money is not the worst thing that can happen. That’s bad, of course, and it can lead to more risk taking to make up for losses incurred. But what’s worse is to make a lot of money fast.

Once someone places a successful bet, they like it. They often take credit for it rather than acknowledging that luck might have played a role. When that happens, they believe they can easily do it again, and they are far more likely to seek out and place another bet. When they make the next one, it is usually with more money. Vegas is built on this dynamic, and it is another sign that speculating in financial markets is more like gambling than prudent investing.

And furthermore, it’s unnecessary for financial success. Yet some will want to do it anyway. It is interesting and potentially lucrative, but the temptations are also dangerous if not managed well. If your client is lured by rapidly rising prices and wants to buy the next big thing, take whatever approach you think best, but please call it what it is. It is speculating, even gambling. Not investing.

Dan Moisand, CFP, practices in Melbourne, Fla. You can reach him at [email protected].