Have you ever invested due to a fear of missing out (FOMO)? Fearing that you’ll overlook the next big opportunity to grow your wealth might lead you to take on more risk or increase your exposure to a particular area or sector. Read on to find out how to boost your composure next time you’re facing investing FOMO.

FOMO started as a term for the dismay you might feel if you’re missing out on experiences or social opportunities. When it’s used to refer to investing, you may fear that you’re missing out on a chance to invest in a company that has a lot of buzz around it.

If it feels like everyone is talking about a particular company or fund, you may feel envious that you’re not part of it or regretful if you’ve missed your chance. This type of bias is normal, but these emotions could also harm your finances.

The dot-com bubble in the 1990s and subsequent crash was partly due to investor FOMO.

As exciting technology start-up companies started to emerge, investors wanted to be a part of the story. It led to valuations soaring rapidly. Indeed, US technology-focused index Nasdaq rose from under 1,000 points to more than 5,000 in the space of just five years.

The index reached a peak in 2000 and then experienced a fall of around 75% – it took 15 years for the Nasdaq to surpass the dot-com peak. The investors who had purchased stocks in these companies due to FOMO were left out of pocket in many cases as dot-com businesses went bust.

A recent survey of adults who are part of Generation Z found many could be repeating the same financial mistake.

FTAdviser reports that 4 in 5 18–25-year-olds have already started investing by the time they turn 21. Younger generations taking an interest in their finances is positive. Yet, 43% admitted FOMO had played a role in their decision to invest and social media was cited as playing a role.

Controlling FOMO is an important financial skill and one that could help you get more out of your finances. Here are five useful ways to reduce the effect FOMO has on your decisions.

1. Recognise that investing is for the long term 

Part of the reason that FOMO can take hold is the thrill that you could be investing in a stock that will quickly rise in value.

Yet, for most people, investing is a long-term endeavour. It might not be as gripping, but being patient and focusing on consistent returns could improve the financial outcome. While returns cannot be guaranteed, the compounding effect of investing over a long time frame could deliver returns and help you reach your goals.

So, next time you’re tempted to change your investment strategy due to FOMO, consider how it could affect your overall plans.

2. Accept that investment markets are unpredictable

Looking back at perceived missed opportunities could mean you’re more likely to act the next time you experience FOMO.

However, with the benefit of hindsight, it’s easy to pinpoint the investments that could have delivered hefty returns. Yet, for every “win” there will be businesses that were touted as great investment opportunities that failed to live up to expectations.

It can be difficult, but try not to focus on past “misses” and look at the bigger picture.

3. Create a diversified and balanced investment portfolio

It can be sensible to tailor your investment portfolio to your goals and financial circumstances. In addition, many investors benefit from a diversified portfolio.

By investing in a wide range of sectors, geographical areas, and business demographics, you could minimise the volatility your portfolio experiences. For example, if technology businesses are experiencing volatility, stability from energy companies could help balance it out.

What’s more, a diversified portfolio will include assets with various risk profiles. So, while you might invest in a low-risk fund, you could also hold some stocks that are higher risk. This could alleviate some of the FOMO you might feel, while still being appropriate for your situation.

4. Have confidence in your long-term financial plan

Reviewing your investment decisions in the context of your wider financial plan could temper the effects of FOMO too.

If you have confidence in your financial plan and know you’re on track to reach your goals, you’re less likely to risk that by diverting your wealth to an investment that could, but isn’t guaranteed to, boost your wealth.

5. Seek an outside perspective

Even when you’re aware of FOMO, it can be difficult to recognise when it’s clouding your judgement. Having an outsider who you trust to offer their perspective can be invaluable. As your financial planner, we can help you assess potential investment opportunities and how they could fit into your financial plan.

If you’d like to talk to one of our team, please get in touch.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.