The pitfalls of FOMO

Fear of Missing Out commonly called FOMO is a slang term generally used to describe the emotion and distress persons feel when they miss out on experiences that others may be having. This feeling tends to arise especially when what is being missed is perceived as an enjoyable or memorable activity. In the realm of investing, emotions can often play a significant role in decision-making, and Fear of Missing Out (FOMO) is one of the most powerful forces that financial advisors often observe in clients. FOMO combined with market hype can have profound effects on fixed income investors. FOMO can influence even the most conservative investors, leading them to make decisions that contradict their usual risk tolerance and tempt them into the wrong investment which can be costly.

How can FOMO affect the retail investor you may wonder? Here are a few ways that your actions may be reactionary or based in FOMO.

1. Following or jumping on trends: with the explosion of digital media, influencers or in this case “finfluencers” are all around. While many are credible and have a wealth of knowledge investors should carefully choose and dissect their information sources. Although it’s tempting, never decide to invest based solely on their recommendation. Some influencers have not done adequate research nor revealed their true motivation behind recommending particular investment products.

2. Peer pressure/family pressure is another factor that can influence investor sentiment on whether to participate in a product offering. Be mindful that your family or friends’ investment goals/plans may not be aligned with yours. Their propensity for risk or how much funds they have available to invest may also not mirror yours. What is “good for the goose is not always great for the gander”. The desire to jump on the bandwagon with friends may also result in an investor entering a position at an inopportune time which leads me to a third way FOMO can affect us.

3. Market Timing Gambles: FOMO can tempt fixed income investors to engage in market timing, attempting to buy or sell securities based on short-term market movements. This behavior may also contradict your long-term, steady income focus. Buying high and selling low is harmful to portfolio performance. Market swings are inevitable and an investor who attempts to time the market can miss out on real opportunities. For example, in the case of stocks we have seen where popular stocks have a run up in price. If you purchased based solely on hype and when prices were at its peak you risk severe losses when there is a downturn in price. When it comes to stocks, past performance is not always indicative of future performance or price. It is best to choose stocks that align with your portfolio and have proven fundamentals.

Constantly comparing your portfolio to others or worrying can lead to impulsive decision-making and sleepless nights. FOMO investing can be very costly and contribute to poor long-term returns. To combat this emotion investors should adhere to disciplined investment strategies. By staying disciplined, informed, and focused on long-term goals, investors can navigate the challenges posed by FOMO and build a resilient portfolio. Speak with a licensed professional to help you stay clear of FOMO and to ensure that you are planning positively for your financial future.

Christine Rankine is Assistant Vice-President -Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm

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