Investors: Beware of status anxiety

Nov 04, 2020

When otherwise intelligent, hardworking folks find themselves in terrible investments, a common culprit is status anxiety. The below outcrop is from an article written by Laura Rowley where she quotes author Alain de Botton. Rowley writes:

… it was status anxiety that propelled smart people to hand over enormous sums of money to Bernard Madoff without paying adequate attention to what he was doing with it.

"What strikes one about the investors in the Ponzi scheme is desperation -- and not necessarily desperation to become rich, but to earn status, honor, and esteem," Botton wrote me in an email. "If our position on the ladder is a matter of such concern, it is because how we feel about ourselves depends to an unfortunate degree on what others think of us.

"Except in societies where status is fixed at birth, our position on the ladder hangs upon what we achieve -- and success is uncertain," he continues. "And from failure will flow humiliation: a corroding awareness that we have failed to convince the world of our value and are henceforth condemned to consider the successful with bitterness and ourselves with shame. That's where Madoff came in: he promised an instant and painless release from these status anxieties."

Beware of those who promise a ‘release’ from status anxiety. It may be the promise of unrealistic returns, too high a yield on an investment, or the ability to turn you from a mermaid into a human. 'The big three' as I like to call them.

I believe we all can struggle with status anxiety to varying degrees. Recognize your limitations and identify them the next time you are tempted to engage in poor personal financial behavior . Ask yourself: “Is this about my own status anxiety or the merits of the investment?”

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***I could not find the article by Laura Rowley online and therefore was unable to link or cite it appropriately. If you do find it please let me know so I can link to it.

Thanks for reading! Can RHF help further guide your investing?