Don't buy into FOMO, the fear of missing out
Do you suffer fear of missing out, or FOMO? Are you preoccupied with the thought that you should have purchased a stock before a massive gain? Stocks like Super Micro Computer and Carvana (both up about 800 percent in a year) come to mind, along with the Magnificent Seven. (To find these top performers, log into finviz.com — tinyurl.com/3bbc94e3.)
I’ve told the story before of talking with a conservative retiree in January of 2000 who wanted to sell the holdings in his balanced portfolio to buy internet stocks, because the returns were high at the time, his friends were making money and he did not want to be “left behind” — a classic FOMO moment. The internet bubble burst a few months later, as the NASDAQ market reached a peak in March of 2000, then dropped 78 percent by
Oct. 9, 2002.
There is always the next trend, the next hot item that is calling for your money— whether it be a new vehicle, trendy new fashion or an investment extraordinaire.
Lori Schock, the director of the U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy, addressed FOMO in a 2022 Director’s Take article headlined “Say ‘No Go to FOMO’ ” (tinyurl.com/2u7j6e8v).
Her views are relevant in today’s market. Schock discussed the surge in online investing, digital assets (including crypto currencies) and meme stocks, along with the accompanying promotions by celebrities, but then she makes the key point that “Not every investment opportunity is right for everyone,” even if those around you are hopping on those investments. And of course, “market swings are inevitable.”
Some stocks — perhaps those that trigger FOMO — may need to be seen differently than others. The seasoned investor will keep emotions out of the picture and either stay away or limit exposure to a small, very small, amount of money. The rationale: There has to be a very good reason to buy a stock after it’s made a dramatic move.
A retiree needs to be wary. A young trader needs to have a selling discipline. Everyone in between needs to limit exposure to sums of money that can be sacrificed should the upward trend reverse.
If you consider the bigger question of market swings, it’s just better from a portfolio point of view to diversify. As Schock points out, the best way “is to create an investment portfolio that has a mix of assets, such as stocks, bonds and cash.” For help in understanding what’s involved, the SEC provides educational resources for you at the Investor.gov website (tinyurl.com/2s3a3a6y).
When it comes to volatility, if you are thinking of trying to time the market by getting out before a big decline and getting back in “at the right time,” Schock notes that “No Go to FOMO” applies to that as well, adding, “It’s time in the market that counts, not timing the market.”
The 2024 “Guide to Retirement” (tinyurl.com/457jsd5t) by J.P. Morgan, a financial services company, provides a solid example of that in its “Impact of being out of the market” section. If you stayed in the market the entire time between Jan. 1, 2004, and Dec. 29, 2023, you would see a 9.7 percent total return on your investment. But, if you missed the 10 best days, your return would be 5.5 percent. Miss the best 30 days? You are down to 0.7 percent. As the guide points out, “Seven of the best 10 days occurred within two weeks of the worst 10 days.” That’s a hard thing to time correctly.
Let’s turn FOMO on its head and ask: When can fear of missing out be a blessing? Schock suggests if you don’t have a saving and investment plan, you need to create one as soon as possible. Investor.gov has free financial planning tools at tinyurl.com/ytran965. Another: Pay off highinterest debt. And, a favorite of mine: Participate in your company’s 401(k) plan, maxing out an employer match (if there is one) and taking advantage of the “power of compounding.”
In the end, “stick with your long-term plan and don’t make investment decisions based on a fear of missing out.” This is Schock’s final message. It could not have been stated better.
Seasoned investment counsel (tinyurl.com/52nus8hz) and award-winning columnist and author, Julie Jason, JD, LLM, promotes financial literacy and investor protection. Read her latest book, “The Discerning Investor: Personal Portfolio Management in Retirement for Lawyers (and Their Clients)" (tinyurl.com/4u7h9pjs), published by the American Bar Association.
Write to Julie at readers@juliejason.com.
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