‘Fear of Missing Out’ is real in today’s world, and it is not even sparing investors. In a report published last year, it was observed that around 30% of mutual fund investors are shifting from one fund to another, which experts suggest is a result of ‘Investing FOMO’. While this term sounds fancy, the development of this is undoubtedly not as fancy as one may think.
What is Investing FOMO?
Investing FOMO can be described as the fear of missing out on trading or investment opportunities. Suppose your friend told you that his investment in XYZ fund generated a 25% return in just a year. You got excited and invested in the same fund without evaluating your risk tolerance and financial goals. After a year, much to your dismay, the fund’s performance is negative.
This is a classic example of investing in FOMO at work. Instead of getting higher returns, you lost money. This is the reality of investing FOMO.
Investing FOMO, in simple terms, is the greed that makes investors invest in securities just for returns without evaluating risks and other factors.
Investing based solely on emotions can lead to disastrous outcomes. In the case of FOMO, it is the greed of the investor to earn higher returns that drives the decision and ultimately ends up in substandard returns or losses.
How can you deal with Investing FOMO?
Here are some of the best ways to deal with or stay away from Investing FOMO:
• Make informed decisions: It is crucial to make informed decisions not to be a victim of FOMO. Rather than relying on emotions, you must base your decisions on concrete facts and figures. This will help you avoid impulsive choices not aligned with your financial goals.
• Risk Analysis: Your investment choices need to be aligned with your risk profile. Going by the above example, suppose the XYZ fund is a small-cap fund with very high-risk factors, and you are a moderate risk-taker. Thus this fund is unsuitable for your risk profile, but since you didn’t do a risk analysis before investing in the fund, you lost money. Thus, always evaluate the underlying risk of a particular asset/ investment instrument and whether it matches your risk appetite before putting any money into it.
• Diversification: Your friend may generate superb returns from one single fund, but that might not be the right investment approach for you. When you think of long-term investment and generating wealth, you need to have a proper mix of assets in your investment portfolio. To minimise risk, it’s important to have a balanced mix of asset classes since each one responds differently to market changes. For instance, gold can be used to hedge the risk of equity investments as both are negatively co-related assets.
• Rebalancing of Portfolio: If you have invested because of peer pressure, then you might be aware of the importance of tracking your investments and rebalancing the portfolio from time to time. As the prices keep changing, the primary asset allocation level, as per your profile, can get disturbed. Thus, it is important to periodically rebalance the portfolio to have the right mix of assets. If you are investing just to get rid of FOMO, and after investing, do not track your investments, you will probably end up in losses.
• Get Professional Help: Finally, if you cannot stop thinking about an investment opportunity but you do not know how to evaluate the risk factor or diversify your portfolio, you can seek professional help from investment advisors or financial advisors who can help you to analyse your profile and investment portfolio and the investment opportunity you have in your mind.
Conclusion
While investing is crucial for every individual to build a secure financial future, it shouldn’t be driven by FOMO but rather by well-chalked-out plan.
