Following the Herd in Times of Money Trouble

When everyone else is nervous, are you?

Herd Mentality
Although we pride ourselves on being individuals and unique thinkers, when trouble looms, the herd mentality often kicks in. This can cause us to do crazy things, especially with our money.

Storm on the Horizon?
Everyone at work was on edge yesterday as the first winter storm moved into our city. You could feel the tension and stress as people checked out weather.com and worried about the drive home.

Just like the economy, we can’t predict the weather. The weather forecasters are just as bad as Jim Cramer, getting us all hot and bothered about the next big thing or the coming storm.

Spooked by the Herd
We don’t know if the storm will bury us with snow and ice or skirt around the city, leaving the roads clear and dry. Although we don’t know, we worry all day. We can’t get anything done. Every new weather report sends a stir around the cubes. Imagining ice covered roads and long lines of traffic we panic, “I’m leaving early!”.

Sound familiar? Does it sound like investors act when the market forecasters are speculating gloom and doom?

Following the Herd
The herd files out as early as they can. A few lone workers remain in their cubes. Some of them were able to block out the nervous noise and focus on their work, knowing that the forecasts of the next “huge snowstorm” sweeping in often turn out to be just hype. But still they wonder, “Should they have left? Was it foolish to remain?”

This happens all too often with financial decisions in our lives. We’re spooked by the media, by the buzz of the crowd. We can’t focus on our strategy, we cut and run. Instead of holding on for long term returns we sell to cut our losses. Or maybe everyone is jumping on the bandwagon. We don’t want to miss out. The window of opportunity is closing and we’ve got to get in!

To Follow or Not to Follow
The great thing about having a financial plan is that you know where you’re headed. If you’re always changing course to follow the herd it will take you much longer to get there. Of course, staying in tune with your environment is key so check out the reasons behind the herds’ panic. If they make sense, block out the hype or fright and update your plan on your terms. Remember, when you follow the herd, you are always behind.

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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