What is fear of missing out (FOMO) and how to overcome it as investors?

What is fear of missing out (FOMO) and how to overcome it as investors?

1,704 Comments

               What is fear of missing out (FOMO) and how to overcome it as investors?

July 1, 2021

Contents

  • What is fear of missing out
  • How does it affect investors?
  • Identifying the factors responsible for it
  • How to overcome FOMO as investors?
  • Conclusion

                                             What is Fear of missing out?

The stock market is a device for transferring money from the impatient to the patient. – Warren Buffett.

Fear of missing out or FOMO is a feeling of anxiety that you are missing out on something that other people are in the know of or currently taking part in.

This doesn’t have to particularly relate to investment decisions per se, you can find this phenomenon in your day-to-day lives as a matter of fact.

You can see people abandoning tried and trusted habits in exchange for whatever is trending new at that moment.

For example: – Let’s say you have been trying to learn French as a new language for a year now and slowly but surely you have been getting good at it.

You see all your friends flocking towards learning Japanese, they try to peer pressure you into joining along with them, if you go ahead with this not only will you be abandoning all the progress that you have currently made, but there is also no guarantee that you or your friends will stick with it and might end up moving on after a couple of months as it often ends up happening.

What is fear of missing out (FOMO) and how to overcome it as investors?
What is fear of missing out (FOMO) and how to overcome it as investors?

                                                          How does it affect Investors?

In this modern age of social media, we are constantly exposed to new investment products, methods, etc.

While this is good in the sense that it helps to bring awareness to the masses, from the perspective of retail investors this may ultimately prove to be a source of FOMO.

An investor who had been diligently putting his money every month in an index fund through a systematic investment plan (SIP) might sway towards a different fund that is currently outperforming.

He may even redeem his capital to start day trading without any prior knowledge or experience in such a field, just because he sees an ad on social media or people that he knows making good money every day.

This results in: –

  • You paying capital gains tax when you redeem your investment (provided there is a profit)
  • Incurring an exit load when you redeem the fund
  • Interrupting the crucial process of compounding
  • Letting go of rupee cost averaging

However tempting something like that might seem there is a very high probability of it ending up with the investor losing his entire capital even.

                                         Identifying the factors responsible for it

Social media influences: – Whether it might be Instagram or Facebook, ads serve as a main source of FOMO.

They promise outrageous returns on capital, which causes investors with a lack of knowledge to switch to other investment vehicles, thereby not letting time do its work.

Peer pressure from friends and neighbors: – Peer pressure from people around you leads you to make decisions that normally you might not. We all have fallen victim to this.

Your friends making a killing doing swing trading, sure let me try that to see where it goes. This usually ends up as a costly mistake.

Lack of knowledge: – Diving into an investment without proper research or consultation with a financial advisor would ultimately lead to a loss of your hard-earned capital.

Aggressive returns: – Looking for aggressive returns that sound too good to be true, ends up in you either falling prey to a pyramid scheme or taking part in illegal investment avenues/methods.

 Identifying the factors responsible for it
Identifying the factors responsible for it

                                         How to overcome FOMO as investors?

1)Stop switching between funds: – As long as your investments are doing as expected of them, let compounding work for you. Remember your fund may not perform as expected for a year or two but as long as the managements investment theory and process is sound you should stick with it

 2)Follow the process and have trust in it, whether it might be investing monthly in a fund or as simple as making regular contributions towards a public provident fund (PPF).

If you have a trading system that you have been working on stick to it, results take time. You can only have control over risk and not returns.

3)Think long term (10+ years) instead of short term when you make an investment. Constantly switching between stocks results in you incurring fees and taxes and timing the market leads to further frustrations.

4)Do your research: – Before you enter into an investment do proper research or consult a financial advisor who charges a flat fee as it can be well worth the money spent. Once you are in view of a financial plan try and stick to it.

 5)The new best thing: – There will always be something new that is being marketed and it doesn’t simply make sense for you to switch out just because your friends or family recommended them.

Lastly, have some patience and try and limit your time on social media this alone can save you a lot of mental stress and FOMO as in you are not constantly being bombarded by the ads and promotions of various marketers.

                                                                                           Conclusion

Investing and making wealth doesn’t have to be complicated, in most instances, in fact, it’s simple, and we tend to make it complex by constantly comparing our returns with the next person or going on the hunt for the next big thing.

This doesn’t have to be the case, as long as your investments meet what predefined goals you have created and are not overzealous, I suggest you,

                                                                                       Sit back and relax, let compounding do its work.

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