If you’ve ever invested money in the stock market you’ve probably succumb to investment FOMO at some stage. What is it exactly? It’s the fear of missing out, you may have read an article online or a post on social media that suddenly changed your mind. You look at Amazon stock, it’s had a great run over the last twelve months surely it can’t possibly continue to go up? Someone on social media makes a short post telling you why Amazon is a must buy now. Suddenly you’re on your investing app of choice going all in on Amazon. It starts to go down over the next few days and you get the realisation that you were right and the person on social media could have been a 12 year old kid that’s never invested a penny before. You sell for a loss and go back to investing in crypto hoping it’s going to the moon. Sound familiar? Here are a few things we suggest to avoid FOMO.
Remind Yourself That Investing is Long Term
The stock market is completely unpredictable in the short term and no one knows whether stocks are going to go up down or sideways and picking stocks based on breaking news usually isn’t a good strategy. We discuss the concept of efficient market hypothesis here if you’re interested, it essentially means that the share price already reflects all available information so buying and selling on news is more or less redundant. The real winners are buying and selling much less frequently and only investing in companies that have great fundamentals. You could invest in an undervalued company and it could still take several years before the market values the company appropriately and you earn a lot of money.
If the Vast Majority of People Are Wrong Why Are You Listening to the Noise?
If many of the professionals can’t beat the market what chance do the part-timers have? It’s easy to ‘follow the herd’ and give into FOMO, especially nowadays with endless YouTube videos, articles and trading apps which promote communication between their users. There is constant talk of inflation and market crashes one minute and the next the market is going on a bull run. Think about it, someone invests in a stock and it goes down, their first thought is to go on social media and tell people to buy it because they know something you don’t to boost the price. This would barely move the needle in most cases but it doesn’t stop them trying.
Stick to Market Tracking Index Funds and ETFs
We bang on about this quite a lot but it really is the best strategy for the vast majority of people. By investing in a broad index you’re much less likely to lose, even mutual funds tend to underperform the market over the long term, we discuss it here if you’re interested. A passive investing approach will also make you less tempted to constantly check your investing app and social media. One of the things we actually like about Vanguard is that it doesn’t have an app, just a website which you’d be less likely to go on ten times a day although we believe an app is on the cards for 2022.
Dollar Cost Averaging
Another investment strategy that can help you avoid FOMO is dollar cost averaging. By focusing on drip feeding a set amount each week or month into the market you’re much less likely to panic buy of sell as you’re buying at the highs and lows.
We’ve discussed CFDs in more detail here, it’s a very risky investment strategy and might sound like a sure thing when everyone is telling you that a particular stock is ‘going to the moon’ and you should invest using leverage to maximise your profits. If you invest in stocks with leverage to maximise your gains you’re much more likely to lose your shirt if there is a market correction or even worse, a crash.
Have a Small ‘Fun’ Portfolio
Whilst we encourage readers to invest in index funds and ETFs having a very small amount of your portfolio allocated to ‘fun’ might encourage one to avoid FOMO with large sums of money. Take 5 or 10% of your portfolio and invest it in cryptocurrency or some individual stocks which you think might have significant upside.
Emulate Investing Royalty
We’re not saying find out what successful investors are doing and copy them exactly but it’s easy to find hours of video footage of some great investors over the years, Warren Buffett, Charlie Munger, Peter Lynch, Mohnish Pabrai and probably our favourite Jack Bogle to name a few. You’ll find that all these very successful people by in large suggest investing in the same way;
- Invest for long time horizons
- Invest in either index funds/ ETFs or companies with great fundamentals
- You can’t predict the market so don’t try
- Being in the market is always better than being out of the market
- Don’t sell in a market crash
If you’re interested in finding out more we suggest Jack Bogles book ‘The Little Book of Common Sense Investing‘.
Investing in market tracking index funds and ETFs is probably the best way to avoid FOMO as it’s a passive form of investing where you typically don’t need to know what’s going on in the wider market. As long as you’re feeding money in whenever you can and focus on investing for a long term time horizon you’ll probably beat the market long term.
The views expressed in this post are the authors and should not be construed as financial advice
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