You get it: you need to invest wisely in order to grow your wealth.
You understand the importance of getting your money into the market, and you’ve been diligently contributing to retirement accounts and maybe even a brokerage account for years now.
But you can’t help but wonder… are you investing in the best possible way? Are you potentially missing out on a better investment someone else is using that you don’t know about?
It’s reasonable to feel this fear of missing out on something great — or having a little investing FOMO. It’s when you act on this fear that you can start making bad choices, choosing poor investments, and making speculative decisions rather than strategic ones.
What Is Investing FOMO?
There’s a research-backed definition for FOMO or fear of missing out: It’s the “pervasive apprehension that others might be having rewarding experiences from which one is absent.”
The prospect of “rewarding” opportunities tends to lure potential investors into the “take this opportunity now” trap without even thinking about it. This plays on your emotions, not your intelligence or capacity for reasoning.
You’ve probably seen these traps before. They sprung up around BitCoin. They come up around every new “hot stock” from talking heads on CNBC. “Opportunities of a lifetime” might even be lurking in your office when you hear your coworker talk about some wild investment that’s generating crazy returns that you just have to get in on.
Hearing things like this often makes us feel uncertain. Are we missing something? Is there an investment that’s bigger, more exciting, and more profitable than the ones we have now?
Your FOMO Could Lead to Serious Financial Costs
The answer in almost every case is “no.” Financial markets are efficient, and thinking you have the inside scoop on a huge investment that no one else knows about flies in the face of that.
There are millions and millions of market participants out there. Your odds of actually having information they don’t are slim to none.
Of course, you’d know that if you thought through this rationally. (Ever heard of things that are “too good to be true?” There’s a reason for that saying and it certainly applies in investing!)
But the fear that you could be missing out on something — even if you’re not entirely sure what that “something” is — often influences investors to make poor choices because they deviate from their cohesive strategy and impulsively act based on what other people they perceive as successful are doing.
Those poor choices include:
Trying to time the market:
Plenty of people love to try and predict when the next big downturn or upswing in the market will be. None of them have any real clue about when it will happen.
Sure, we know it will happen. But we don’t know exactly when. And how will you know when to get back in? Anyone tempting you to invest big now (or to sell everything and get out before a crash) is leading you to a big mistake, and probably a new product.
Speculating instead of investing:
Investing FOMO usually manifests through speculative behaviors. BitCoin and other cryptocurrencies are a great example.
Watching other people make hundreds of thousands, even millions, of dollars from buying coins can make you feel like you’re missing out, big time. No one is arguing you could make a lot of money from such a purchase.
But we need to be clear about one thing: if you do so, you’re speculating, not investing. Speculating looks a lot like gambling, and there’s no strategy behind it. It’s a lot of chance and luck, which means you could hit it big — but more likely, you’re risking money you may or may not have to lose.
Jumping from craze to craze:
On a similar note, investing FOMO can cause you to dump money in whatever’s trendy this month. This creates huge potential for loss, not just because you’re jumping around without a plan.
But you’re also likely incurring higher fees, transaction costs, and throwing your asset allocation and diversification way out of whack. A better way? Invest strategically and with care, with the long-term in mind.
Getting Over Your Fear of Missing Out on the Next Big Investment
So, how do we get over FOMO and avoid making the wrong financial choices? The first step is to be self-aware. Start to recognize those uncomfortable feelings that creep up when someone you know or someone on TV or in the media begins talking about that next hot stock…
…and then learn to do nothing with that feeling. You do not need to act. You can acknowledge you feel uneasy, stressed, or worried that you’re missing out, but you don’t need to try and meddle with your investment strategy.
Step two? Reach out to your financial advisor and let them know how you feel. Your advisor is there to help you stay the course even when you’re emotionally tempted (by either fear or greed) to take a wild left turn into speculative territory.
Finally, you might want to immerse yourself in a little knowledge. If you can better understand how markets work and develop your own strong investment philosophy, you’ll be better able to sort through the noise that could previously trigger your sense of investing FOMO.
You’ll know what’s worth listening to — and what’s simply a distraction along the way.
Again, your advisor may be able to point you in the right direction if you’re not sure what resources to use to increase your knowledge and deepen your education on finance and investments. Your family’s life savings depends on it!