Can you relate to any of the following?

• “I should have bought that stock before the company went public!”
• “What a shame — I wish I had invested in that new tech before it went mainstream!”
• What’s the next “unicorn” that will make a fortune?”

It’s common to feel this way. Many of us experience “fear of missing out” — or FOMO — in our financial lives.¹

When we do, it can cloud our judgment and cause us to make short-sighted, fear-driven decisions that could result in more losses and interfere with our longer-term financial goals.²

How to Spot the FOMO Trap: Understanding the Pitfalls

FOMO in finance is an investing bias closely linked to herd mentality and a scarcity mindset.

FOMO gets us thinking:

Popular ideas must be “good” because everyone’s embracing them: This is the herd mentality at work, and it usually has us skipping the due diligence and ignoring anything that challenges the herd.¹

Rare opportunities are super valuable: With scarcity, we focus on how fleeting or limited an opportunity is, regardless of its inherent potential value. That can mean we overestimate the benefits at stake, simply due to rarity or a closing window to take action.¹

When financial FOMO starts creeping in, we are far more likely to:

• Base our choices on limited information, taking little to no time to double-check our intel and confirm whether it’s valid.²
• Make more impulsive decisions, including when it comes to impulse spending.³
• Buy high and sell low, chasing some trend and rushing to get in on the perceived “action.”²
• Make riskier moves than we typically would, putting more on the line.²
• Lean into the survivorship bias, zeroing in on success stories of “easy” wealth without accounting for the risks, the “losers,” and the bigger picture.⁴

All of that can be a trap, with FOMO pushing us to dive off the deep end with big hopes and expectations and minimal information. That combination of factors can be a recipe for disaster, resulting in more losses, spiraling anxiety, and even damage to our most important relationships.²

A recent example of widespread FOMO in finance was the cryptocurrency boom of 2021 to 2022. Dogecoin was among the big-name cryptocurrencies at the time, with Elon Musk backing it. That sparked a ton of FOMO among investors, with wild hikes and fast free falls, especially around Musk’s 2021 appearance on “Saturday Night Live.”⁵

The Power of Patient Investing

FOMO can be gripping, but it doesn’t have to get in the way of prudent choices. Given how FOMO and trend-chasing can lead to losses, a better alternative can come in the form of patient investing.

That means:

• Building wealth slowly and surely over time
• Leveraging index fund investing, compound interest, and long-term market growth

With index fund investing, you invest in a broad slice of the market (a “fund”) that follows a set index, like the S&P 500. Naturally diversified, index funds tend to have a good track record over time, with fund performance tied to several companies, not just one.⁶

Compound interest means interest on interest, as well as the principle. Effectively, compound interest lets you earn at a much faster rate, setting the stage for exponential growth. Keep in mind that compound interest can work for you with retirement savings accounts and other investments. It’ll work against you with credit and loans.⁷

Those are just some of the strategies that can fuel success in patient investing, and there are several real-world examples of this in action.

Take the legendary Warren Buffet for one. At age 21, Buffet was only worth ~$20k. He didn’t earn 99% of his wealth until after the age of 50, and he didn’t become a billionaire until 56. As such, he’s the ultimate symbol of patient investing, representing how much it can pay off to mute FOMO in your financial life.⁸

How to Build a FOMO-Resistant Investment Strategy: 7 Tips

To make patient investing a practice that overrides any sense of FOMO, you can:

1. Develop a solid plan: Create an investment plan based on your long-term goals, risk tolerance, and time horizon. Look at this plan as your north star, guiding your decisions, regardless of market hype and the latest trends.
2. Embrace diversification: Spread your investments across different asset classes and sectors to manage, balance, and offset the risks. Resist the urge to go “all in” with any single investment.
3. Automate your investments: Set up regular, automatic contributions to your cornerstone investments, like your retirement accounts. This can take the emotion out of the equation while providing consistency and regular contributions that keep you on track.
4. Focus on the long term: When market volatility hits (and it will), remind yourself of your long-term goals. Also, remember that the markets are cyclical and regularly changing. Any phase they’re in now won’t last forever, and short-term fluctuations can be part of “healthy” markets.⁹
5. Educate yourself: The more we know about finance, the easier it can be to mute our FOMO. With a better understanding of basic investment principles and why we make certain choices with our money, we can get much better at ignoring FOMO and avoiding the siren’s call of the latest “get-rich-quick” schemes.¹⁰
6. Resist the urge to monitor the minutiae: Limit how often you look at your portfolio. Constant monitoring can make it easier to overreact to short-term market shifts.
7. Give yourself a “cool-off” period before major moves: Make it a rule that you won’t dive into any new investment opportunity without waiting a certain period of time, doing some due diligence, and (ideally) talking to someone you trust. FOMO relies on the heat of the moment, and even a 24-hour cool-off period can be enough to provide key perspective and more rational decisions.

Goodbye FOMO. Hello Strategy and Patience.

FOMO is natural, and it can sneak up on any of us. The newest craze can promise instant wealth, and that illusion can be extremely tempting, especially if we’re feeling lost or less than confident in our current plans.

Staying connected with our big-picture goals and what it takes to get there can help sideline FOMO whenever it arises. So can discussing your choices and concerns with an experienced financial professional.

Sources:

1. https://money.usnews.com/investing/articles/behavioral-finance-fomo-loss-aversion-and-other-investing-biases#fomo

2. https://www.investopedia.com/deal-with-crypto-fomo-6455103

3. https://www.researchgate.net/publication/361229435_The_Impact_of_Scarcity_on_Consumers%27_Impulse_Buying_Based_on_the_S-O-R_Theory

4. https://www.investopedia.com/terms/s/survivorshipbias.asp

5. https://www.bloomberg.com/news/videos/2021-05-09/elon-musk-hosts-snl-video

6. https://www.cnbc.com/select/what-are-index-funds/

7. https://www.investopedia.com/terms/c/compoundinterest.asp

8. https://finance.yahoo.com/news/warren-buffett-accumulated-99-net-193522940.html

9. https://www.investopedia.com/trading/market-cycles-key-maximum-returns/

10. https://www.researchgate.net/publication/364483299_Fear_of_Missing_Out_Reality_in_Financial_Investments

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