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.

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