FOMO Phenomenon: How Fear of Missing Out is Devastating Investors

Financial experts think that fear of missing out (FOMO) could cause investors who aren’t very smart to lose a lot of money.

FOMO is the worry that everyone else is having fun and you’re not. Josh Brown calls investors who act on their feelings “animal spirits.”

Messages about “hot” investments like cryptocurrencies, joke stocks, and SPACs are all over social media. Influencers and experts who push these assets may downplay the risks or not say what they plan to do.

Depending on when people buy and sell, investments that are “in” at the moment don’t always fail. Experts and advisors say that investors only hear about big wins and never about losses.

FOMO-control At the Future Proof wealth conference in Huntington Beach, California, in September, “The Psychology of Money” author Morgan Housel said.

Joseph Bert, chairman, and CEO of Certified Financial Group says that it’s better to “get rich slowly” than to invest in high-risk, high-reward ventures.

Most types of assets went up in value in 2021, which made it easier for investors to make money. One million millionaires were made by stock and cryptocurrency gains.

Last year, investors bought things with the help of hype men and women and social media.

Elon Musk’s tweets can make the price of bitcoin go up by 20% or more in a day. In February 2021, he called dogecoin “the people’s crypto.”

Meme stocks like GameStop and AMC got a lot of attention on the WallStreetBets Reddit forum. Jay-Z, Steph Curry, Serena Williams, and other famous people have put money into SPACs, which used to be the hottest thing on Wall Street.

Depending on when they bought and sold, investors may have lost a lot of money because they didn’t want to miss out.

In November 2021, Bitcoin reached $69,000, tripling in a year. Since then, it has dropped to $19,000, which is about the same as it was before it went up. The stock of GameStop fell 40% in a half hour because of how volatile the market was.

Last year, the SEC warned investors about SPACs that were backed by celebrities.

“Like everyone else, celebrities can be talked into investing in a risky business, or they may be better able to handle the risk of losing money,” the SEC said. “You should never invest in a SPAC just because a famous person backs it, invests in it, or thinks it’s a good investment.”

“Few people know how much risk they are willing to take and how much they will regret things in the future until things go wrong,” said Housel. He also said that everyone has a high-risk tolerance in a bull market.

Why advisors win FOMO

Top financial planners try to stop FOMO by making people think about what they will regret in the future.

Aldo Vultaggio, the chief investment officer at Capstone Financial Advisors, likes to talk to clients about how likely it is that they can reach their financial goals with and without “FOMO assets.”

Why should a customer take on more risk if they are on track to retire comfortably or pay for college?

Fear of failure keeps clients from making short-term investments or makes them put less money into investments overall.

“Why buy risky investments? Most of the time, they want to do that because they might get a bigger return,” Vultaggio said. “But why would you do it if you don’t have to?”

He said, “We’re on track.” “We don’t want to take side trips.”

Vultaggio tells clients who want to hold a FOMO-type allocation to a risky asset that they should limit their position to a low-single-digit percentage of their overall holdings and not invest money they will need in the short or medium term.

Madeline Maloon, a financial advisor with California Financial Advisors in San Ramon, California, said that investing in stocks, bonds, and other asset classes always involves some risk. However, it’s a calculated risk that has a long history of success.

“We need something we can plan for, while these hot stocks, crypto, or whatever it is, [customers] have to realize that this is their gambling money,” Maloon said. This isn’t enough to live on in old age.

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