FOMO and your investments: FOMO (or Fear Of Missing Out) is more than just a cute acronym when it comes to your investme
Posted: Wed Mar 30, 2022 3:43 pm
FOMO and your investments: FOMO (or Fear Of Missing Out) is
more than just a cute acronym when it comes to your investments.
The impact of FOMO can be severe, primarily because it’s driven by
an emotional response to feeling left out while everyone else is
(seemingly) making huge returns. And as most of us know by now,
making investment decisions out of emotion can be detrimental to
your long-term investment returns. So, to help you navigate the
FOMO conundrum, below are some of the more common ways in which
this “emotional response to missing out” can impact your financial
outcomes, plus some tips on how to avoid mistakes.
FOMO fuels spending Not wanting to miss out on the material
items and lifestyle experiences that others are enjoying is one of
the biggest drivers of overspending and unsustainable personal debt
levels. If you’re driven to “keep up with the Joneses”, it may
serve you well financially to examine the psychological roots of
this tendency and try to overcome it. It’s also important to
remember that everyone’s financial position is different, so rather
than focusing on what others are doing with their money, it’s a
better idea to focus on your own spending habits and making sure
that you live within your financial means. Investing in a “winning”
share, regardless of the price If you had piled into Naspers shares
in the late 90s, your financial life would probably be on a
different trajectory right now. But it would have taken over 10
years before things started taking off, and there was no sign that
it was going to be a “winning” share at the time. And just because
this particular share has done phenomenally well so far, doesn’t
mean it’s guaranteed to continue doing so into the future. As
investment professionals like to remind us: past performance is not
an indicator of future returns. Arguably, those shares that are
widely known as “winners” are probably quite expensively priced,
and may not give you as much upside as other cheaper options. For
the average investor who is not spending the bulk of their day
doing in-depth share research and analysis, investing in the stock
market through an equity unit trust, such as the Prudential Equity
or Dividend Maximiser Funds, is usually a better option than trying
to identify the next “winners”.
Trying to time the market It’s remarkable how difficult it
is to convince people of this well-established investment truism:
there is no bell that rings to signal the top of the market or the
bottom. Investment professionals themselves freely admit to getting
it wrong quite often. But waiting for that magical “right time” to
invest is likely to result in further regret and FOMO. A better
option is to accept that it’s not possible to time the market and
that having an investment plan and sticking to it (regardless of
the noise around you) is usually the best thing you can do. Another
approach, once you’ve defined your investment objective and chosen
a fund that meets these needs, is to phase in your investments
gradually and consistently over time. For more information on how
this works, read our article on rand cost averaging. Falling for a
fad or scheme If it sounds too good to be true, it probably is. For
those who suffer from financial FOMO, the big question right now
is: should I be investing in alternative investment options, like
cryptocurrencies? While there are those who have certainly made
money following this route, many investors have also lost money or
been taken in by fraudsters, with little recourse to recoup their
losses.
Our view is to tread with extreme caution when it comes to
alternative investment options as many are highly speculative and
are still largely unregulated. Discipline and consistency are key
It’s painful to hear about other investors making spectacular
returns in short periods of time with investments you missed out
on. But to become a successful investor, resisting FOMO is an
important behavioural practice you need to get used to. Leaving
yourself vulnerable to big losses is a bigger mistake than missing
out on the top performers. Discipline is one of the most important
characteristics in investing, and history has shown time and again
that being consistent and sticking to a long-term strategy is what
sets successful investors apart from the rest. It’s important to
realise that the fear of missing out is a natural emotion and not
necessarily something that can be overcome in a short space of
time. The important part is knowing that FOMO exists, being able to
identify it when it appears, and avoid making emotional decisions
that could negatively impact your long – term investments
returns.
Question 1
Discuss the determinants of mutual fund performance.
Question 2
Define and give (three) examples of each that show the differences
between an investment objective, investment constraints and
create an example of an investment policy
more than just a cute acronym when it comes to your investments.
The impact of FOMO can be severe, primarily because it’s driven by
an emotional response to feeling left out while everyone else is
(seemingly) making huge returns. And as most of us know by now,
making investment decisions out of emotion can be detrimental to
your long-term investment returns. So, to help you navigate the
FOMO conundrum, below are some of the more common ways in which
this “emotional response to missing out” can impact your financial
outcomes, plus some tips on how to avoid mistakes.
FOMO fuels spending Not wanting to miss out on the material
items and lifestyle experiences that others are enjoying is one of
the biggest drivers of overspending and unsustainable personal debt
levels. If you’re driven to “keep up with the Joneses”, it may
serve you well financially to examine the psychological roots of
this tendency and try to overcome it. It’s also important to
remember that everyone’s financial position is different, so rather
than focusing on what others are doing with their money, it’s a
better idea to focus on your own spending habits and making sure
that you live within your financial means. Investing in a “winning”
share, regardless of the price If you had piled into Naspers shares
in the late 90s, your financial life would probably be on a
different trajectory right now. But it would have taken over 10
years before things started taking off, and there was no sign that
it was going to be a “winning” share at the time. And just because
this particular share has done phenomenally well so far, doesn’t
mean it’s guaranteed to continue doing so into the future. As
investment professionals like to remind us: past performance is not
an indicator of future returns. Arguably, those shares that are
widely known as “winners” are probably quite expensively priced,
and may not give you as much upside as other cheaper options. For
the average investor who is not spending the bulk of their day
doing in-depth share research and analysis, investing in the stock
market through an equity unit trust, such as the Prudential Equity
or Dividend Maximiser Funds, is usually a better option than trying
to identify the next “winners”.
Trying to time the market It’s remarkable how difficult it
is to convince people of this well-established investment truism:
there is no bell that rings to signal the top of the market or the
bottom. Investment professionals themselves freely admit to getting
it wrong quite often. But waiting for that magical “right time” to
invest is likely to result in further regret and FOMO. A better
option is to accept that it’s not possible to time the market and
that having an investment plan and sticking to it (regardless of
the noise around you) is usually the best thing you can do. Another
approach, once you’ve defined your investment objective and chosen
a fund that meets these needs, is to phase in your investments
gradually and consistently over time. For more information on how
this works, read our article on rand cost averaging. Falling for a
fad or scheme If it sounds too good to be true, it probably is. For
those who suffer from financial FOMO, the big question right now
is: should I be investing in alternative investment options, like
cryptocurrencies? While there are those who have certainly made
money following this route, many investors have also lost money or
been taken in by fraudsters, with little recourse to recoup their
losses.
Our view is to tread with extreme caution when it comes to
alternative investment options as many are highly speculative and
are still largely unregulated. Discipline and consistency are key
It’s painful to hear about other investors making spectacular
returns in short periods of time with investments you missed out
on. But to become a successful investor, resisting FOMO is an
important behavioural practice you need to get used to. Leaving
yourself vulnerable to big losses is a bigger mistake than missing
out on the top performers. Discipline is one of the most important
characteristics in investing, and history has shown time and again
that being consistent and sticking to a long-term strategy is what
sets successful investors apart from the rest. It’s important to
realise that the fear of missing out is a natural emotion and not
necessarily something that can be overcome in a short space of
time. The important part is knowing that FOMO exists, being able to
identify it when it appears, and avoid making emotional decisions
that could negatively impact your long – term investments
returns.
Question 1
Discuss the determinants of mutual fund performance.
Question 2
Define and give (three) examples of each that show the differences
between an investment objective, investment constraints and
create an example of an investment policy