How FOMO Is Harming Your Personal Finances: Part Two

The Fear Of Missing Out–also known as FOMO–can cause us to make some silly decisions. It can inspire us to throw caution to the wind, and make impulsive choices that will come back to haunt us. This certainly extends to our money, and it is therefore important that we fully understand how FOMO can harm our personal finances.

In this companion article article, we have reviewed how FOMO can wreak havoc on our spending decisions. In this piece, we will explore how it can cause us to make shortsighted investments.

Does FOMO Cause Bad Choices?

At its most distilled form, FOMO is the idea that we will regret not taking action now. We will lose out an opportunity to create a once-in-a-lifetime memory by deciding to forgo that night out, weekend away, or vacation across the ocean. While often conflated with experiences, FOMO can also be applied to other ways in which we part with our money.

This certainly holds true with investing, where stories of those who timed the market perfectly create envy and desire to replicate these feats. For instance, most everyone wishes that they had gone in on NVIDIA (NASDAQ:NVDA) in the mid-2000s when the pathbreaking AI giant was trading at just a few dollars a share. While this might be an extreme example, many megacap companies started trading at small amounts prior to rocketing up to the stratosphere.

Fear of missing out on one of these investments can cause investors to devote large sums of money to companies with uncertain futures. After all, the greater the risk the bigger the reward, as the old saying goes.

Investing in a future unicorn in the early stages is the dream, but is it really doable? And how can we be sure when the time is right to stake a position in the next big growth stock?

What Are the Dangers of FOMO-Inspired Investing?

Attempts to time the market are by definition speculative at best, as no one can predict the twists and turns of the economy with anything approaching certainty. While history has shown that overall trends are positive for the major indices, there are down years when portfolios across the board will be negative. You could get lucky and time your investments just right, but you could also experience major losses.

Enter Investing FOMO. Your friend, colleague, or cousin may come to you with the “next great thing.” It is a surefire investment winner, they say, with eyewatering multiples just waiting to be seized. Perhaps it is a stock, a business opportunity, or a new cryptocurrency.

You may feel pressure to act fast before everyone realizes this secret. Suddenly, your steady, monthly contributions to your 401(k) plan do not seem so appealing. You are worried about regretting leaving huge profits on the table, and imagining how angry you will be at yourself if you do not jump in now while you have the chance.

However, before you make make any rash decisions with your money, it is important to understand what you are investing in and how it could impact your long-term goals.

How Can You Avoid FOMO Investing?

The best way to avoid any FOMO-inspired decision is to fully consider your prospective choices. Diverting funds away from long-term investments for a speculative opportunity could end up costing you if the project or company goes bankrupt.

It is for this reason that having a plan, and sticking to it, is the mark of a serious individual. This is certainly the case when it comes to investing. It is okay to put some small sums of money aside to bet on speculative stocks, but the vast majority of your funds should be devoted to those companies that have solid fundamentals and present strong opportunities for long-term growth.

Visualizing the type of long-term financial scenario you wish to create for yourself is key. Doing so will help you understand the amount that you need to put away, and the rate of return that you will require to reach your chosen sum. Keeping this number–and your future existence in mind–can help you avoid the temptation of making FOMO bets with your money.

The Merits of Dollar-Cost Averaging

The philosophy of dollar-cost averaging can serve as an effective antidote to rash, FOMO-inspired investing.

Dollar-cost averaging relies upon investing a consistent sum of money on a regular basis into the market, regardless of market volatility or share price. By this strategy, you will “average” out the purchase price that you will be paying for assets.

In practice, when the market is up, your money will purchase less stock; when it is down, your money will go further. Over time, as the market increases, so will your investments. Dollar-cost averaging removes concerns about perfectly timing the market, while also providing a mechanism to continue making investments at regular intervals. (If you are making monthly contributions to your 401(k) or IRA account, you are already practicing this approach.)

Such a consistent method of investing is the polar opposite of FOMO investing. It is a robust way to ensure that you protect your financial future

Conclusion: The Importance of Long-Term Planning

Anyone can be tempted by prospects for incredible growth. It is easy to fantasize about turning a few bucks into a fortune, which also explains the allure of the lottery, Las Vegas, and sports betting.

However, it is important to remember your long-term planning and the roadmap that you have crafted to get there. There is no “sure thing” when it comes to investing, just patient strategies that over time can help you accumulate wealth.

FOMO can disrupt your plans by causing you to remove money from safer investments in favor of riskier ones. Keeping your focus on your long-term objectives can help you sidestep the FOMO trap and help you reach the future that you desire. You definitely do not want to miss out on that.

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