Op-ed: Don't let fear of missing out control your investment decisions

The term “FOMO” is defined as “a state of mental or emotional strain caused by the fear of missing out.” It’s also a form of social anxiety — a compulsive concern that one might miss an opportunity or satisfying event, often aroused by posts seen on social media websites.

Although it is natural for people to experience FOMO, such anxiety can lead us to make bad decisions.

Judgment should not be clouded by the desire to fit in or fear of being left out of the fun. This is especially true when it comes to our hard-earned money. Just because your friends and neighbors are investing in a certain stock or asset class doesn’t mean it’s an appropriate investment for you.

Oftentimes, if something seems too good to be true, it probably is.

That’s why it’s important to slow down, research that investment opportunity everyone’s talking about and consider its long-term impact on your financial well-being and goals.

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Those who are new to investing and/or have suddenly come into significant wealth can be especially vulnerable to letting FOMO overtake them when they hear about hot investment tips or opportunities.

How would they know better? Like any other skill, investing takes time to master. Therefore, most investors could benefit from experts who they trust to develop and implement an appropriate investment strategy that reflects their goals and values.

Guiding investor clients through periods of stock market volatility has illustrated how “successful” investing is determined by the amount of time spent in the market — not timing the market.

As the saying goes, “don’t put all your eggs in one basket.” A savvy investor will take a gradual, broad-based approach. To that point, it’s not smart to invest your entire stimulus check or year-end bonus in a single company you’ve read is going to be the next big thing.

Of course, you could buy some shares of that company if you can afford to lose every penny, but we recommend starting simple and obtaining broad-based market exposure through, for example, passive, index-tracking exchange-traded funds, so you can learn how the market works.

After you’ve felt the highs from your potential investment returns and lows from losing money, you might be prepared to take on more targeted or complex investments.

To help pacify any FOMO tendencies, you might consider engaging with a trusted financial advisor who can work with you to develop a financial plan that prioritizes your goals and values. To that end, an effective plan will set up guardrails to make sure you stay on the appropriate path for maintaining your financial well-being and independence.

If a particular investment or other potential decision does not fit the parameters of your financial plan, you will find yourself more confidently ignoring or rejecting them as distractions, rather than being anxious about missing out.

This does not mean that your financial plan should be static.

On the contrary, it should be nimble and dynamic enough to react appropriately to any changes to your overall financial picture, goals or values. That trusted advisor can act as your sounding board to determine whether or not a change in your plan is warranted, or if you are trying to cover up future bad decisions caused by FOMO.

You also need to be careful about borrowing money to invest. Many financial institutions will lend money to investors so they can purchase stocks they’re eager to invest in — and online platforms have made the process easier than ever. But borrowing money at historically low rates to buy shares of a stock that hopefully never goes down in price is often too good to be true.

If you accept a margin loan to buy shares in a hot stock and the stock price goes down, you either have to put in more money to maintain your level of collateral or sell some of your investments to repay your loan. While various free-trading apps make trading on margin easy, it is a very risky strategy that is extremely inappropriate for most investors.

It’s also important to note that complex investments and strategies aren’t necessarily better than more straightforward counterparts. Don’t be fooled by grandiose, sophisticated terms and descriptions.

A complicated investment isn’t a better alternative to the more commonplace ones you’re used to just because it’s more difficult to understand or attracting people who profess higher investing acumen. In fact, it is a best practice to avoid investments that you cannot easily understand. Oftentimes, such investments are complex due to additional risk.

When you’re considering a more complex investment, you should ask, “Can this be done simpler?” Very often, it can — and with lower fees.

But too often, investors are reluctant to believe that because they don’t want to miss out on an investment everyone’s talking about, or they assume that more sophisticated investments are better for their portfolios.

As advisors, we have found that explaining the pros and cons of sophisticated investments, such as complex options strategies, to clients has at times helped them see things more clearly. It also reminded them that basic financial principles like starting and staying simple — and not rushing into trendy or complicated investments — is a smart strategy.

Just like in social settings, trendiness and sophistication don’t necessarily make people or activities better. The same applies to investing.

If you decide to work with an advisor, choose one who is a steadfast partner in guiding you through the investment process and reminding you to avoid FOMO-led decisions.