Investors shouldn’t be afraid to be fearful

Wherever I go, people ask me the same two questions. “What do you think about the economy?” “Do you think we’re in a market bubble?” While there are ample data, studies and reports pertaining to these questions there are, nonetheless, a wide spectrum of opinions and conclusions.

For example, according to a recent University of Michigan survey, an increasing number of those surveyed believe the economy is deteriorating. Consequently, they are more pessimistic about the future.

Government data shows that inflation is up 3 percent since September 2024. But it takes only a trip to the grocery store to perceive that prices are up well beyond 3 percent since September last year. In a nutshell, I believe that people are frustrated by rising prices. They’re tired of the drama surrounding the on again, off again tariffs. And, more recently, the dragged-out government shutdown, which added more fuel to the fire. Is it any wonder why so many people dislike politicians?

On the other hand, it’s hard to believe consumer spending is relatively strong. But people are spending and traveling. So apparently, while they may be pessimistic, they’re still out there spending and living active lifestyles. It appears to me that the economy is stronger than advertised simply because consumers are resilient. At least a substantial number of them.

For many years, emotions have been guiding the actions of investors. Fear and greed, like two ends of a barbell, weighing them down. Obviously, people are fearful of losing their money. They are cautious, reluctant to risk their principal. They weigh many questions, realistically analyzing their situation. Can I afford to retire? Will I outlive my nest egg? They’re aware of and fearful of the bad things that can happen when they lose money and don’t have enough to pay current bills and finance their retirement.

Greed, the opposite of fear, is a powerful motivator. And a dangerous one. How often have you heard about someone losing their money by investing in something totally speculative? Or acting solely on a “hot tip?” That’s gambling, not investing. Much more prudent to deploy due diligence, stick with what you know and stay diversified.

Trying to get rich quick is another example of greed. In today’s world, I believe greed has hatched another worrisome emotion, the fear of missing out, or FOMO. For example, how many people have invested in cryptocurrency, but don’t have a clue how it works? And many are speculating in the suddenly popular Artificial Intelligence companies. Many of them unprofitable and spending tons of money.

People are simply frustrated with current events and uncertain about the future. Many can, however, think long term and envision a George Jetson type future with all kinds of technical wonders and investment opportunities. Let’s call them somewhat fearful.

Others are overly excited about AI, see all the big money going into it and don’t want to miss out. While I believe that AI will indeed usher in a world of wonders, I’d have to label these people FOMO.

So, greed or fear? It’s okay to look ahead and invest a reasonable amount in innovative technologies. And it’s prudent to not put your entire investment portfolio into something unproven. As long as you’re guided by patience and protected by diversity.