FOMO or fear of missing out is a term originally created to talk about the distress one feels at missing out on experiences and opportunities. However, FOMO is often used in investing to discuss how emotions such as impatience or envy influences an investor to make poor decisions.
Here is what you should know about FOMO, how to recognize it in investing and how to manage FOMO to keep it from negatively affecting your investing.
FOMO stands for ‘Fear Of Missing Out’. The meaning of FOMO is that, in the course of an arising fear about missing out on an opportunity or a chance, certain actions are performed. For instance, due to the fear of missing out on a good investment opportunity, investors may invest in a particular bonds or funds. The concept of FOMO has caused several investors to invest in ways that are not really recommended. In the financial market especially in mutual funds, index funds and exchange-traded funds (ETFs), the fear can be clearly seen when an investor experiences regret after missing out on a huge rally in the market.
There are a number of situations that might make investors experience FOMO. Here are some tips that can help you to deal and manage FOMO while investing.
Before investing in a mutual funds, index funds and exchange-traded funds (ETFs), you should carry out your own research. Don't invest in funds with a high expense ratio, various hidden front-end, and back-end load charges; this may lead to lack of control over investment decisions. It is always better to research about several stocks in the same industry, so you have a comparative analysis to make an informed investment decision.
Multi-asset investing is a strategy in which an investor diversifies their portfolio with two or more different types of assets. Stocks are the most common asset to trade, but other common investing assets include bonds, mutual funds, real estate, ETFs, and so on. These are some good options to manage FOMO while diversifying your investment.
Many investors consider consulting a financial advisor as an unnecessary cost. They think investing is just a one-time activity and for that they don’t need any financial advisor. They seek advice from their friends, colleagues and relatives. A financial advisor will not only guide an investor in making the right asset allocation as per their requirement, but will also help in gaining the proper risk-adjusted returns. By consulting a financial advisor, it will help an investor to reduce the fear of losing out on gains on various financial instruments.
Investors who make FOMO trades should keep a track of all their trades in an Excel document, so that they can compare the outcomes of the trading decisions they made based on their analysis VS based on FOMO. Reviewing past trades can act as an informed strategy for your future trades and could discourage FOMO trading.
FOMO is one of those emotions that can cause you to make all kinds of mistakes, whether in investing, your career, relationships, or budgeting. Avoiding FOMO when investing by sticking to a fundamental strategy, taking adequate time to carry out your own research, and knowing when to walk away has the potential to significantly increase your investment returns.
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