Everyone experiences FOMO, which is the Fear of Missing Out on various aspects of life, but it’s crucial to resist it when making investment decisions. In today’s post, we will learn why I made that statement.
FOMO stands for “Fear of Missing Out.” It’s when people feel anxious or worried about missing out on something exciting or profitable.
Imagine you’re on a road trip. You have a map that guides you to your destination. Sure, you might see some cool attractions along the way, but if you keep changing your route every time you see something shiny, you’ll never reach your destination!
Similarly, in investing, your long-term plan is like your map. It helps you stay on track and reach your financial goals. While it’s tempting to jump into investments just because everyone else is doing it, you need to stick to your plan.
When we make decisions solely based on FOMO, it can lead to impulsive choices that might not align with our goals. So, remember, while it’s okay to feel FOMO, it’s essential to have strong willpower and stick to your long-term plans.
You can do that by practicing this phrase called “NO GO to FOMO”.
“NO GO to FOMO” means saying no to impulsive decisions driven by FOMO.
Instead of making quick decisions because everyone else is doing it, this phrase reminds investors to think carefully before acting. If your friends are all buying a certain stock because they think it will make them rich quickly. But you’re not sure if it’s a good investment for you, so you don’t blindly follow everyone.
“NO GO to FOMO” reminds you to take your time, do your research, and only invest when you’re confident that it’s the right choice for you.
Various investment opportunities like digital assets, meme stocks, and NFTs are gaining popularity because many influencers often promote these. The SEC emphasizes caution against FOMO, reminding investors not to follow others blindly.
Investors should not base their decisions solely on recommendations from influencers and should resist the temptation to follow trends blindly.
Do you react to market swings?
Reacting to market swings due to FOMO can be harmful to financial stability due to these reasons:
- When people react to market swings because of FOMO, they often make decisions without thinking them through. They might buy stock or sell them just because everyone else is doing it and they get afraid of missing out on profits.
- But the truth is, reacting impulsively like this can actually hurt your financial stability in the long run. Market swings are normal, and they don’t always reflect the true value of investments. Reacting to them based on FOMO can lead to buying high and selling low, which is the opposite of what you want to do as an investor.
- It can also cause you to miss out on real opportunities because you’re too focused on what everyone else is doing.
Building a diversified investment portfolio can lessen risks that come with market volatility
Diversification means spreading your investments across different types of assets, like stocks (which are like shares of companies), bonds (which are like loans you give to companies or governments), real estate (which is a property like a house or land), cash in checking and savings account and commodities (like gold, silver, oil, etc).
Diversification within asset classes and avoiding timing the market are essential strategies to protect your investments. You can diversify within each type of investment too. For example, if you’re investing in stocks, you might choose different companies and industries. This you can easily do by buying ETFs or Index funds. I have made several posts on that so you can check those out by searching these two terms.
Also, it’s important not to try to time the market (which means predicting when to buy and sell investments based on what you think the market will do). Instead, focus on the long-term and stay diversified.
What Should You Fear Missing Out On? **
The first thing should be not planning for your future and setting Long-Term Goals
You need to start prioritizing financial planning if you haven’t done already. This means setting long-term goals, like buying a house, saving for your children’s education, or planning for retirement. Having a clear plan helps you stay focused and make smart decisions with your money.
The second thing is Not Paying Off High-Interest Debt like credit card loans
Paying off high-interest debt should also be a priority. It’s like getting a guaranteed return on your investment because you’re saving money on those high-interest payments. So, please include paying off credit card debt or other high-interest loans in your financial plan.
3rd is Not taking advantage of the Power of Compounding
Start saving early and consistently. The power of compounding means your money grows over time, and the earlier you start, the more you benefit. Even small, regular contributions can add up significantly over the years and I will show you this through this calculator. Where you can see how by just investing $100 every month, you can make a lot of money in the future, if I just change the time horizon, see how exponentially your money can grow, with interest payments becoming the biggest factor of your total returns, as the years pass.
The fourth mistake or what you should FOMO is Not taking advantage of free money through Employer-Sponsored Retirement Plans
Don’t miss out on participating in employer-sponsored retirement plans like a 401(k), especially if your employer offers matching contributions. This is like free money and can lead to significant returns over time. This will ensure you have a secure retirement financially.
So, remember to prioritize financial planning, pay off high-interest debt, start saving early, and take advantage of employer-sponsored retirement plans to ensure a brighter financial future.
Successful investing requires discipline, patience, and a long-term perspective, not reacting impulsively because of FOMO.
