Money Relationship: Ahead Of Curve Or Last In Line?

Are you among the first ones in your circle to buy the latest gadget, eat out at a trending bar, visit the hot destination or upgrade your wardrobe with the style of the season? If yes, you are good at spotting a trend, and might be overspending on your wants. But that may be the least of your troubles, financially speaking. If you chase trends even when it comes to investments, that could become a serious problem if you simply follow the herd.

A stock that has delivered impressive returns, a mutual fund everyone seems to be recommending or an investment idea shared by a trusted friend can quickly grab your attention. The problem starts when the need to keep up becomes stronger than the need to ask, “Is this really right for me?” or “Am I late to the party?”

What Works

Your biggest strength is your openness to new ideas. This means you are comfortable adapting when things change, rather than sticking to old familiar ways. Imagine your advantage if you had moved to mutual funds 15 years ago instead of sticking to fixed deposits (FDs). Currently, you may be willing to try new products such as specialised investment funds (SIFs) or real estate investment trusts (Reits).

If you are quick and on point in spotting a trend, you may have an early mover advantage and may reap the benefits before others flock to it. For instance, if you had invested in the metal sector a year ago, you would have earned a 44 per cent return, compared to a -2.62 per cent return by the Nifty over the same period. The key is to spot the opportunity before others do.

What Doesn’t Work

The biggest risk you face is arriving late to the party.

When everyone around you is talking about a stock or fund, it can be difficult to sit back and say, “Maybe this isn’t for me”, but chasing recent performance can also mean passing up the opportunity and buying at expensive valuations. For instance, PSU and railway stocks caught the fancy of investors during the 2023-24 rally, with many investors flocking to these stocks when valuations shot through the roof. However, several of these stocks corrected sharply later, with many falling around 35-40 per cent from their peaks. The Nifty India Railway PSU Index is down over 18 per cent currently from the 2023-24 highs.

Also, you may sometimes find yourself spending simply because you don’t want to feel left out. If friends are upgrading their phones, buying a car or planning an expensive holiday, you may feel the urge to do the same, even when it means putting the expense on a credit card or taking a loan.

The danger is that, in trying to keep up with others, you may lose sight of what actually fits your own pocket and priorities.

What Should You Do?

Your openness to new ideas can be a financial strength. The trick is to figure when you have spotted a genuine opportunity, and when you are simply following the crowd.

Says Santosh Joseph, chief executive officer, Germinate Investor Services, a boutique financial services outfit: “So, how do you tell fear of missing out (FOMO) from a genuine opportunity? A trend usually feels irresistible. Everyone is talking about it and seems to be making money from it, and you feel you must also get in before it’s too late. A genuine opportunity can feel far less exciting, sometimes even boring. It may not make headlines, but it makes sense for your goals and has the potential to work over the long term.”

The biggest risk for a trend chaser is losing sight of one’s own financial plan. When decisions are driven by what is popular at the moment, then goals, affordability and risk appetite can take a back seat.

Remember that trends can fade just as quickly as they emerge, so you wouldn’t want to get caught on the wrong side. Joseph suggests a simple check: “Know what you are buying, why you are buying it and what could go wrong. Set a price or return target, and review your position as circumstances change. If the investment has done as expected, consider booking some gains or trimming exposure. Reaching your financial goal matters more than staying invested in a trend forever.”

Trends come and go; your financial goals shouldn’t.

Your Superpower

You are open to new ideas and are quick to spot emerging trends and opportunities, which can sometimes provide you the first-mover advantage

Your Blind Spots

When it comes to investments, you face the risk of spotting a trend at its fag end, by when the opportunity may have passed

The urge to keep up with your peers can create cash flow problem if affordability is an issue

You are likely insecure about yourself and unable to decide what’s trending and what’s right for you