The term “FOMO”, which stands for “Fear of Missing Out”, explains the uncomfortable feeling people have when something good is happening that they’re not a part of.
With the DOW Jones, S&P 500 and NASDAQ in the headlines constantly for hitting record highs, many are experiencing FOMO for not participating more in the run up.
In the past, I’ve done entire radio shows on the subject of “emotional investing”.
We’ve see this cycle happen over and over again.
The market goes up and people get excited and buy. Then the late comers feel like they’re missing out so they buy-in near the end of the market uptick.
Then a correction happens and people see their balances dropping and they get scared and sell out when it’s closer to the bottom of the market cycle.
This is what we call buying high and selling low.
It’s the opposite of the fundamental principle of investing which is to buy low and sell high.
FOMO drives people to buy high, and fear of loss drives people to sell low.
Say for example you’re in your 30’s and you’re feeling FOMO because you haven’t been contributing very much to your 401k.
In this case, FOMO can be a good thing if it causes you to ratchet up your contributions.
But for that individual, you’re going to want to make your contributions automatic, and keep contributing EVEN IF the market drops. This is dollar cost averaging which works in your benefit over time.
For someone who is getting close to retirement or they’re already retired they too can get FOMO because, while they may have a portfolio of investments, they might see other people getting better returns.
You have to remember the point of your retirement portfolio is to produce an income stream for as long as you live.
Limiting portfolio volatility and reducing your risk WILL lower your returns, but that’s ok!
My best advice is to work with a fiduciary financial advisor who can keep you on track, adjust your portfolio to match your needs, and keep you from making “emotional investing” mistakes.