Safety In Numbers? Not When It Comes To Finances And Your CareerBy Paul Rubillo | Published February 5th, 2013
There are certain times in life where it is tempting to follow everyone else due to the misconception that there is always safety in numbers; however, this will damage your finances and your career decisions in the long run. When it comes to investing, herd behavior has led to some huge losses for investors; and when it comes to your career, the last thing you want to do is to base your schooling and goals on what other people think is right for you. We like to be reassured by the majority (friends, family) that our financial decisions make sense and that we should continue on the path we’re on, but if you want to succeed in investing and in your job, it’s better to go your own way.
Investing Herd Behavior
This phenomenon of herd behavior is often seen in investing, as investors usually want to own what everyone else does, thinking that the herd has already figured out how profitable these investments will be. This kind of thought process leads to blind investments, which can be profitable over the short-term, but when investors start to realize that these investments are not profitable in the long-term, there is a precipitous drop and most investors that followed the herd will end up with huge losses. The dot-com/tech bubble was a clear example of how crowd mentality works. Granted, many moms and pops looked like geniuses for a while, but when the markets started to tumble, everyone turned into a deer in headlights, seemingly helpless to stop the incoming losses. Profits came and quickly vanished.
The reason for herd mentality starts with a possibly good investment in a solid company with huge growth opportunity, but once that company’s stock has been driven up, investors start looking for similar companies. Sooner or later the companies that are getting investors don’t have the fundamentals or realistic growth opportunities that the initial company had, but investors don’t want to miss out on profits, so they follow the pack into worse investments. After some time—as seen in the dotcom bust—the smart investors start to pile out of the investment, taking their profits with them, and the herd will follow, taking less and less profits until stock prices drop so far that many investors will be selling at a loss.
To avoid following the herd, it’s important to always do your own research and only invest in companies and industries that you know and understand. If you’re looking for long-term income, your best bet is to invest in some solid dividend-paying companies. Your research can start right here at dividend.com – check out 40 Things Every Dividend Investor Should Know About Dividend Investing.
Following The Crowd When It Comes To Your Career
When choosing your career, assurance from others becomes important as college students realize their parents are paying for college and want to know that their child has chosen the right career path. Notice when you ask a college student about their career ambitions, they will typically say my mom or dad think this is the best opportunity for me; kids do need the helping hand and guidance from their parents whenever possible, but sometimes a parent may not be on top of job trend shifts, and are only well-versed in careers that made sense a decade or two ago.
Taking others’ advice, or feeling pressured to follow a certain career path will most likely lead to wasted time, effort and money, as you will someday realize that your calling in life is not the career you’ve chosen. The most important part of choosing the right career is to identify your strengths, and find jobs that utilize those strengths. As well, consider what you really enjoy doing, and find careers that you’ll be passionate about. After you’ve figured out what you’d like to do, you can start researching the job market to see what jobs are actually out there.
The Bureau of Labor Statistics is a good starting point, as it will give you a basic understanding of different jobs, what kind of education and experience they require, and how much they pay on average. As well, the BLS will give you an outlook for how these job fields are expected to grow in the coming decades. Keep on top of industry and job market trends to make sure that the job you want to do will still be around once you’re done your schooling. Getting a job is hard, but finding the right job for you can be even harder – find out what you need to know in How To Find The Right Job And Stay Satisfied.
The Bottom Line
It is up to you to take the direction of what you want to do when it comes to your career as well as putting your money to work for you through investing. If you’re a parent reading this, you need to take the time to get up to speed on what careers are going to be strong over the next few decades, before you disseminate any advice to your kids or anyone else that asks for your opinion/assurance. The same thing applies to anyone that offers advice about business. Are you caught up with what is going on in the real world, or are you just spewing what you think you understand?
Keep these thoughts in mind as you inevitably ask others for their opinions on what decisions you have made and are soon to make.