Don’t let FOMO influence your investing decisions
Experts say chances of making moves you later regret increase once insecurities, fear are in play
When scrolling through financial and investing content on social media, some young people say it can be hard not to get a sense of FOMO — a fear of missing out.
“(FOMO) can feel like you are behind or you’re not where you are supposed to be,” said Crystal Sills, a 30-year-old marketing co-ordinator and parts manager in Montreal.
Experts say while basing investment strategies on information from social media isn’t necessarily a bad thing, allowing FOMO to influence your buy and sell choices increases the odds of making decisions you later regret.
“I often see elements of investing I don’t completely understand — like Wealthsimple’s DIY platform and other forms of stock trading — and feel like I should participate,” said Kyle Empringham, a 32-year-old director of social impact partnerships at a tech firm in Victoria.
If you do decide to go against the crowd, there can be lingering thoughts and doubt whether you made the right decision, Empringham added.
Neil Gross, chair of the Ontario Securities Commission’s Investor Advisory Panel, said that investing in a popular stock to avoid being left behind is not a new phenomenon, but “social media puts FOMO on steroids,” which is why we’re seeing bubbles in so-called meme stocks such as GameStop, which shot to dizzying heights in early 2021 amid popularity on Reddit and stock trading apps such as Robinhood.
“Those who bought in midway or late in the surge were exposed to huge risk, especially if they borrowed to buy the shares,” he said. “Many of these folks got caught when the price collapsed. If they thought they were making an investment, as opposed to participating in a market riot, then unfortunately they unwittingly threw their money away.”
However, not all social media has a bad influence on investing, he noted.
“By spreading the word on such things as avoiding high fees and by connecting people to a wide range of information sources, social media can be very beneficial and efficient. But because the information on social media isn’t curated or filtered, it also spreads a lot of incorrect stuff.” There can be a risk that influencers may intentionally or inadvertently be distorting the whole picture, Gross said.
For instance, he explained that people on social media may not acknowledge the odds against achieving success or may downplay or not understand the risks involved.
“They may simply be overestimating their investment acumen, mistakenly believing they were insightful and skilled when in fact they just got lucky,” he added.
Gross cautions investors to always remember that social media is “mostly just gossip.”
‘‘ Social media puts FOMO on steroids. NEIL GROSS CHAIR OF THE ONTARIO SECURITIES COMMISSION’S INVESTOR ADVISORY PANEL