Opportunity Cost, the FOMO, and Wealth Management

opportunity, innovation, risk, investments

One of the first lessons we learn as human beings is that every choice has a consequence. One of those consequences is that each decision we make both opens and closes doors to other opportunities. When it comes to decisions around money, it can be hard to handle the idea of missing out on opportunities. Because money is deeply emotional for most people, we often conflate our fear of missing out (FOMO) with the economic principle of opportunity cost. This can lead to disastrous money management strategies as fear is always focused on short term gains, while financial success is built upon long-term returns.

                                                                                         Fad or Innovation?
Technology is constantly changing. It seems like every day there are thousands of new opportunities to chase. How do you decide what is worth investing in? The first thing you need to figure out is a new opportunity a fad or an innovation? The Pony Express was a new way to rapidly deliver messages between the east coast and the wild west in 1860. It was popular and effective. It was also a fad. The Pony Express was in operation from April 1860 to October 1861. It only lasted 18 months. It was replaced by a genuine innovation—the telegraph. You can directly trace the evolution of the modern internet to the telegraph wires that replaced the Pony Express.
If you had been an investor in the 1860s, you would have made more money skipping the trendy Pony Express and instead investing in telegraph related businesses. This same dynamic continues to play out across every industry.

                                                     Flexibility as a Strategy to Minimize Opportunity Cost
Not every hot, new technology is a fad. Some new companies are truly innovative. Some investments really are once-in-a-lifetime opportunities. However, in the beginning, it can be hard to tell the difference between a fad and a true innovation. One way to control your FOMO and reduce the opportunity costs of sticking to a steady wealth management strategy is to build flexibility into your strategy. Allocate a small portion of your assets to pursue risky new investments. If you are prudent in your choices, you can benefit from a steady, long-term based strategy while also taking advantage of fast-growing investment opportunities.

                                                                                 The Cost of Doing Nothing
Nobody likes the feeling of leaving money on the table. However, one of the best ways to not let the fear of missing out taint your financial decisions is to review what the costs of doing nothing are. What would happen to your net worth if you didn’t invest in a new, untested opportunity? Most of the time, the answer is that you won’t lose money sticking with your existing wealth management strategy, but you are risking making less money. However, the flip side is that if you change your strategy to chase a new opportunity, you are risking making less money on your existing strategy and losing money on the new opportunity.

Is chasing a new opportunity worth the risk of not just making less, but actually losing money?

Fear is the enemy of prosperity. Wealth is built and protected through smart, incremental growth. Rash, drastic actions often precipitate financial disaster. Never let your fear of missing out control your wealth management strategy. Instead, use data and sound financial advice to weigh the opportunity cost of your current strategy. Talk to an OmniStar Advisor today, and let us guide you to your best outcome.