05/29/2025

Chasing Fads When Investing

Written by Geoffrey Schaefer, CFP®

When investing for the future, one of the most detrimental behaviors we can fall into is chasing fads.  Gold, bitcoin, meme stocks, jpegs of apes, semiconductors, geographic plays, penny stocks, online options trading, the list goes on and on?

“In the long run, investing is not about markets at all. Investing is about enjoying the returns earned by businesses.” ~ John C. Bogle

The founder of Vanguard puts it so eloquently. If you are an investor, you allocate money towards companies adding value and reap the benefits of their growth and profits over decades. When we start looking at days or weeks, we end up on the verge of not investing at all, just speculating.

But sometimes we can start to feel, the S&P 500 just isn’t good enough? Sometimes a diversified basket of companies with strong earnings just doesn’t meet our expectations (likely unrealistic) for what investing should be.

We hear about something from a co-worker or see an Instagram post. Then we go off and find an article to support this newfound thought, and four reddit threads later, we are day trading the Iraqi denar at 4am and renting space to start a bitcoin mining operation.

Here’s the thing about fads, they come fast, they are intense and in our faces. We can’t ignore them because they are on Yahoo finance’s home page and all over Instagram. The talking heads on Fox won’t shut up about it. Our cousin calls us and asks us about it and our friends go out of their way to tell you that they own this faddish investment. We look around and wonder, “am I the only one missing out on this?” Let me go ahead and answer that, no, you are not.

Chasing fads is detrimental to our long term financial success. How do we know we are following a fad?

  1. The “investment” surges in value. The idea of investing has been around for hundreds of years and formal stock markets came to being in the late 1700s. Growth in these markets are measured by small incremental movements over time. Beware of chasing the triple digit surges as these are not sustainable or realistic.
  2. The decision to invest feels time sensitive. If you feel you need to move now, you are likely not making a rational investing decision, you have a fear of missing out (FOMO). If you get the buy it now or never feeling, you are being driven by emotion. Pause. If it is a small amount, take 72 hours to think about it. If the amount is larger, take weeks. Money that makes sense within a financial plan will make sense to invest today and a month from now.
  3. We seek confirmation bias to make you feel better about our choices.  We buy bitcoin at the top and realize that it solves very few problems in our society, so we buy books and go to webinars and talk to crypto maxis that will get us jazzed up to keep our manufactured belief alive. I’m picking on crypto here, but substitute options trading, real estate, buying nail salons and car washes. Fads take all shapes and sizes and a good sign you are chasing a fad is that you start venturing down an endless rabbit hole of information to make yourself feel better about your decisions.
  4. The topic takes over media and social media. Media is driven by clicks, by what can draw us in. Nothing in our Facebook algorithm cares about rationality and truth. No influencer on TikTok has a concern for how we invest our money. It all is meant to drive content. If you watch Fox or MSNBC and think they care about providing you with truth, you are sorely mistaken. They are peddling facts that cause the biggest emotional response possible in order to get us to “stick around until after the break.” *cue the pharmaceutical commercials* If we become drawn to an investment opportunity because of media buzz, we should stop right there.
  5. Everyone else is doing it.  First off, like I already wrote, no, everyone is not doing it. We can talk to two people at work or at a kid’s sporting event that are trading options at midnight and suddenly we ask ourselves, “Are we the only ones not trading options in our pajamas?”  The reality of fads is that the few people who participate in the foolhardy endeavors are usually very loud about their participation. The small minority makes the vast majority feel small. You own a home, contribute to your 401(k), have an emergency fund, are saving for college, but you are not buying options on semiconductor stocks?!?! More people are rational when it comes to planning and investing than you realize, but those who are rational when it comes to investing usually possess the humility and restraint to not broadcast their financial lives at every given opportunity.

An investment portfolio should be very similar to paint drying. It is neither fun to talk about or to watch. When you venture outside of a sustainable diversified portfolio and start pushing into fads, you have to ask yourself, why?

Why do we need the possibility of an outsized return in our portfolios? (there’s an equal chance of loss by the way).

Have you done a poor job of managing your cash flow and now you feel behind?

Are you struggling with insecurity and jealousy because your sibling or neighbor has more than you?

Will more money solve the problems you find yourself in?

I would start with those questions rather than chasing that which you will likely never catch. 

If you understand you are chasing a fad, but still need the rush, do it in a responsible manner. A good simple rule of thumb is less than 2% of what you have to invest for the future. Take that and bet on a semiconductor stock or Ethereum or your college roommate’s brewing company. In an ideal world, we could all work around this urge, but I understand for some the speculation can be recreational.

There are reasons we feel the need to go after speculative flash in the pan investments. When we are honest with ourselves, we can get to the real reason we think we need these investments.  That honesty within a financial plan might take you somewhere. Masking that truth with chasing the next thing will leave us with an account full of fake internet money and a closet full of Beanie Babies.

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