If you haven’t heard that phrase, it means Fear Of Missing Out.
FOMO is a feeling of resentment aroused by another’s circumstances, good fortune or outcomes. It occasionally rears its ugly head frequently among participants in financial markets. It can creep up on any of us and can feel quite natural. But just because it may feel natural or an innate part of who we are, doesn’t mean it is advantageous.
In the past year there have been several securities and stories of quick wealth that bring FOMO. We may regret our “boring” investment strategy and envision how much quicker we can reach our goals by purchasing high flying securities. When we imagine significant gains, dopamine receptors are activated, which makes us feel good – as if whatever we do will be right.
FOMO, when not checked, often leads to unhappiness, and influences risky behavior as we seek what others have achieved, without respect to the role of luck in the initial outcome nor the probability that such luck will continue.
The challenge is that there will always be some (insert the word crazy) investment that performs better than our diversified portfolio. Sorry to use a sports analogy, but hitting financial home runs and grand slams are exciting and activate many receptors in our brain. Building wealth through compounding is the financial singles and doubles – yawn inducing.
FOMO can also bring regret and disappointment. Empirical evidence over decades shows that investors who chase what’s hot significantly underperform a more “boring” disciplined investment strategy over the long-haul.1
Feelings such as FOMO can make sticking to your plan difficult. It’s one reason why patience and discipline are the greatest virtues an investor can develop. It won’t be easy, but it is the best chance we have to achieve our financial goals. Let's have a conversation if you are feeling FOMO in your financial life.
Adapted from ©2021 The Behavioral Finance Network. Used with permission
- JP Morgan. A Guide to the Markets. December 2020.