I found my jam, as they say, in college.  After four years of high school, during which I did my best to maintain my grades and play sports and not much else, I was ready to spread my wings.  College was for me as much an academic exercise as it was a social one.  If I’m being honest, I was not prepared for the freedom that came with living away from home.  From the first day of orientation to the last day of school social activities were abundant.  And, if I’m still being honest, my social calendar often took priority over the academic one.  Some of my fondest memories of college are of late-night conversations with my roommates, parties at the beach, and road trips to New York City.  I enjoyed these moments so much that I became obsessed with not missing any of them for fear that I would be left out of some amazing adventure.

I’ve learned since that the fear of missing out (FOMO) is a very real psychological phenomenon.  It is best described as the anxiety or discomfort we feel when we miss out on some enjoyable experience that others might be having.  It is the same impulse that motivates us to climb the social ladder and spend more than we should on things we don’t need. 

It has profound implications when it comes to investing.      

We see a stock go up and we wonder if we should by it.  We see a sector of the market going up and we wished we owned more of it.  If only!

Too often people let their emotions get the best of them and they make decisions based on fear.  Fear of holding an investment too long or selling an investment too soon.  That emotion tends to lead to big mistakes.  It’s easier said than done, but having a long-term strategy for investing and sticking to it regardless of the day-to-day activity in the market is proven to be most effective over time.  Buy low and sell high is a great theory but how would one know the ultimate high or the lowest low?  Have an approach that allows you to systematically rebalance your portfolio.

Understanding FOMO in Investing

Imagine you hear about a stock that’s doing well, each day you watch it, and it continues to go up. Everyone is talking about it, and it seems like a good idea to buy some of that stock too. After all, everyone else is making money, why shouldn’t you? This feeling is what we call FOMO in investing.

But making decisions based on FOMO can sometimes lead to big mistakes. For example, just because a stock is going up today doesn’t mean it will go up tomorrow. If you buy when the price is high, you could lose money when the price goes down later. 

It’s natural to feel excited or worried about your investments, especially when you imagine others are making money. But the key is to have a plan and stick to it. This is where a long-term strategy comes into play.

A long-term strategy means thinking about your investments not just for today or tomorrow, but for many years ahead. Instead of trying to guess the perfect time to buy or sell, you can set up a plan that helps you stay on track over time.

One important part of a long-term strategy is something called "systematic rebalancing."  It means adjusting your investments regularly to make sure they match your goals.  Long-term-goals-based planning is what we want to focus on…not instant gratification.

For example, let’s say you decide to invest in a mix of stocks and bonds. Over time, some of those investments might grow faster than others. By rebalancing, you can sell some of the investments that have grown a lot and buy more of the ones that haven’t grown as much. This helps keep your portfolio stay in line with your original plan.

Investing is like planting seeds in a garden. You don’t expect every seed to grow into a big plant right away. Some might grow quickly, while others take time. But if you take care of your garden and water it regularly (or in this case, rebalance your investments), you’ll have a better chance of seeing everything grow over time.

So, the next time you hear about a hot stock tip or a booming market sector, take a moment to think about your long-term strategy. Ask yourself: does this fit with my plan? Will this help me reach my goals in the future? Time and strategy are your friend.  Impulse decisions are the enemy. 

By focusing on your long-term goals and sticking to your plan, you can avoid making decisions based on FOMO and feel more confident about your investments. Remember, investing is a journey, and having a strategy can help you navigate it wisely.

If you have any questions about investing or creating a long-term strategy, reach out to an advisor you trust has your best interest in mind.  Find someone who will create a financial plan with you.  Someone that listens to your goals and matches your values.  They can help you understand more about FOMO and how to make smart choices that are right for you.

* Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results.
* Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

Choosing a Financial Advisor – Wednesday, July 31st, 2024

Presented by Sean P. Reilly, CFP®, CPWA®, CIMA®, CEPA®

Managing Director