Understand the Psychology Behind ‘FOMO’ in Investing and Rise Above It to Succeed in 2023

So, without doing your research, you jump right in.It’s called fear of missing out (FOMO).

Understand The Psychology Behind ‘Fomo’ In Investing And Rise Above It To Succeed In 2023

Chances are, there’s been a point in your investing career where you’ve missed the opportunity to invest. Then, a few years later, that investment skyrockets, leaving you wondering “what if?” If it hasn’t happened to you yet, give it time. It’s a moment every investor experiences.

Wise investors will shrug it off and hope they get another opportunity to pump up their portfolio. Not-so-wise investors will over-correct and jump on the next opportunity they find, believing it’s the next rocket to the moon.

But first, if you want to have a one-on-one discussion about how to overcome this fear and prevent it from directing your investments, click the link below for a free strategy call with our team at LendCity today.

Here’s an example of FOMO – Fear of missing out

You just found out a property you were looking at years ago has tripled in value. Now, you see fellow investors buying up properties in what appears to be the next up-and-coming neighbourhood. What happens if their investments pay big time and you don’t invest? So, without doing your research, you jump right in.

It’s called fear of missing out (FOMO).

FOMO is something every investor experiences, new and seasoned alike. Unfortunately, instead of paying off big time, FOMO often leads to investors making impulse decisions. That up-and-coming neighbourhood everyone else is investing in? Chances are it’ll become over-saturated and fall far short of your moonshot expectations.

If you’re making significant financial decisions based on a gut feeling or “because everyone else is doing it,” don’t expect things to pan out well. While some investments driven by FOMO can generate respectable returns, it’s important to realize that many FOMO investments lead to debt.

Few things can deter an investor’s journey toward financial independence faster than FOMO.

Understanding FOMO

FOMO is a term borne of the social media age. However, it’s rooted as a psychological concept that goes much deeper.

In psychological terms, FOMO is best described as a type of ‘loss aversion.’ It means you’re aware other people are making investments that may generate promising returns. As a result, you’re afraid by not making similar investments, you’ll be missing out on those high returns. There’s a real fear that everyone else will prosper and you’ll be left out.

Acting on feelings of FOMO also turns into confirmation bias. If you miss out on the investment, it confirms that you should’ve invested; if the investment pays off, it also confirms your decision. Giving in to FOMO fuels it. Unfortunately, we tend to only recognize it when it’s convenient. If you jump on feelings of FOMO and your investment crashes and burns, it just wasn’t meant to be, right?

Beyond a psychological trick of the mind, FOMO is also a type of social anxiety. If we see other investors making gains we’re not participating in, we’ll experience a feeling of loss. Perceived losses drive behaviour twice as strongly as perceived gains, which helps explain the power that FOMO holds over investors. But, as we’ve been taught from childhood, it’s not always a bad thing to stand apart from the crowd. If all your friends were jumping off of bridges, would you do it too?

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Preventing FOMO from impacting your investment strategy

With proper preparation, savvy investors can free themselves from the ill effects of FOMO. It starts by developing a long-term investment plan to help you achieve your goals, without becoming sidetracked by trendy investment opportunities. Here are a few tips to make smarter investment decisions and avoid FOMO-driven purchases:

Create a goal

The first thing you need to do to inform your investment strategy is to outline your long-term investment goals. Are you hoping to build a significant amount of personal wealth, or are you looking for a way to supplement your retirement income? You need to have a clear, consistent vision of the place your investments will take you. If you don’t have a solid goal that you’re working toward, your investment habit could quickly become nothing more than a very expensive hobby.

Build a plan

Once you’ve outlined your goals and objectives, establish a highly detailed, year-by-year, quarter-by-quarter plan that will help you achieve your long-term goals. Build a plan designed to meet your personal goals. Your plan should include annual budgeting, income expectations and more. While creating your long-term plan, establish the number of properties and the amount of income you’ll need.

Investment trends are usually just that—trends. If you see lots of investors hopping on to a bandwagon, or offering tips and leads to other investors, it’s only healthy to view their decisions with a certain amount of skepticism. While it’s important to reevaluate your plan from time-to-time, you should rely on your original strategy as much as possible. Carefully consider and weigh even the most minute changes to your plan, to make sure they fit the broader set of goals. Don’t get sidetracked by trends. Chasing them will put you further behind your bigger goals.

Keep a long-term perspective

Regardless of where your investing journey takes you, maintain a long-term perspective. Even if you end up making a bad investment, view these developments in light of your long-term plan and objectives. Maintaining a long-term perspective and tracking your progress on a quarterly and annual basis will help you avoid FOMO-driven investing habits.

You’re going to miss out. There are opportunities everywhere and you can’t invest in them all! The best you can do is stick to what you know and what you’re confident in.

Stick to your goals

Establishing long-term goals and building a plan to help you achieve those goals may be less sexy than hopping on the latest investment trend. In the long run, it’s the best, most dependable way to achieve financial independence and grow your wealth. There are boundless opportunities out there, but not every single one of them is right for you.

Is there ever a time to give in to FOMO? Not really. But, as you stay cognizant of it, make sure you’re not overcompensating and becoming paralyzed by decision-making. There’s a difference between impulsiveness and decisiveness. Sometimes you need to pull the trigger on an opportunity without hesitation. If you do your research and you’re confident, it’s not about FOMO—it’s about decisiveness.

Now, if you want to have a one-on-one discussion about how to overcome this fear and prevent it from directing your investments, click the link below for a free strategy call with our team at LendCity today.

Understanding The Psychology of the Fear of Missing Out and Rise Above It, With Scott Dillingham