Clients often tell me they are worried that they are missing out on a secret that all their friends know about money and finances. Usually, it relates to a friend or colleague bragging about an investment that gave them a quick and impressive return. We see our friends investing in the latest “hot stock” or buying real estate in a trendy neighborhood, and we can’t help but wonder if we should be doing the same. We worry that we’ll miss out on potential gains or opportunities if we don’t act quickly.
The fear of missing out (FOMO) is a real and powerful emotion that can have a significant impact on our financial decisions. FOMO is the feeling that we are missing out on something exciting or valuable that others are experiencing, and it can lead us to make irrational choices with our money. However, it’s important to understand the risks of making financial decisions based on FOMO and how you can avoid those mistakes.
Behavioral finance research has shown that FOMO is a common emotion that affects financial decision-making. It’s the reason why so many people buy high and sell low, chasing after the latest investment trend without considering the long-term consequences. FOMO can also lead to overspending and debt as we try to keep up with our friends and peers.
But fear not; there are ways to overcome FOMO and make sound financial decisions. Here are a few tips to get you started:
1. Keep your eyes on the prize
When it comes to investing, it’s important to focus on your long-term financial goals. Remember why you are investing in the first place, and keep your eyes on the prize. Short-term market fluctuations may be tempting, but they should not dictate your investment decisions. Quick jumps in the market can just as easily turn into a quick plummet in price. As the saying goes, “Rome wasn’t built in a day.” Wealth creation takes time, patience, and a lot of discipline.
2. Don’t follow the herd blindly
Just because your friends, family members, or co-workers are investing in a particular stock or property, it doesn’t mean that you should too. Unless you’ve seen the numbers, don’t take their word for it! Before making any financial decisions, do your research and consult with your financial advisor. Evaluate your investment options based on your personal risk tolerance and investment horizon, and don’t be swayed by the latest investment fad.
3. Look behind the curtain
Many people on social media (and in real life) present images of themselves that are not the full truth. Most of us want others to see us as smart and successful. A good camera angle and filter often give a false impression. From my own experience, I know people LOVE to talk about how they made one super smart investment decision, but they frequently don’t clue you in on all the bad decisions they made. Those bad decisions often add up to a total return that is a lot less amazing than the one they are bragging about. For example, many people talk about real estate as a no lose investment and point to the fat checks they get after closing. This may be true for some, but what they are not considering is how much money they poured into the place before they sold it. People like to highlight their one lucky decision, but if you ask them if they’re able to replicate that decision reliably over time, it becomes clear that the decision was a one-off. It’s kind of like that guy who is still “living up” his senior year in high school when the team took the championship! Before you make a financial decision based on someone bragging about their success, be sure to look at all the information and get in the weeds.
4. Avoid impulsive decisions
FOMO can often lead to impulsive financial decisions that we may regret later on. Impulsive decisions are usually based on emotion and not logic. It’s important to take a step back, breathe, and evaluate the situation objectively before making any major financial decisions. Remember why you’re investing in the first place. What are your long-term financial goals? Are you saving for retirement? Your children’s education? A down payment on a home? By keeping your focus on your long-term financial goals, you can avoid making impulsive decisions based on FOMO. Often people who made one lucky investment did so on impulse, and that impulse is not something they can replicate more than once. A financial advisor can be a sounding board to help you avoid impulsive decisions.
5. Learn to say “no”
Sometimes, the best way to avoid FOMO is simply to say “no” to things that are not in line with your long-term financial goals. If your friends invite you on an expensive vacation that you can’t afford, or if you’re tempted to buy the latest gadget on impulse, learn to say “no.” Remember that financial discipline and delayed gratification are key ingredients to building long-term wealth.
Overall, it may seem like others are cashing out on quick investments, but this is not a sustainable way to grow your wealth. Those who get rich quickly are often unable to replicate the decision or situation that got them there in the first place, which does not help build wealth over time. By keeping your eye on the prize, doing your research, avoiding impulsive decisions, learning how to say “no” to flashy items or trips, and consulting with your financial advisor, you can keep your FOMO at bay and continue on your journey towards financial success.
