For thousands of years, humankind has been driven by fear. Only, nowadays, the average person is vastly more educated than our ancient predecessors, therefore – we fear less. Yet, fear remains a great influence upon our day-to-day lives. This rings true for anyone – but our focus today will be fear and investing.
For many, fear creeps up on you even before you’ve started investing. It may take many forms – you may fear making the wrong investment, you may fear that you’ll never manage to earn as much interest as you’d want to. You may fear losing all of your investments to a market crash. Some succumb to these fears early on and never even give investing a chance.
And even when we manage to overcome these initial fears and actually start making investment choices – these fears never really cease. But there are two sides to this story!
Rational fear isn’t necessarily bad
As mentioned before, our species owe a lot to fear. Arguments can be made and proven that fear has had a role in every technological advance since before our first forefather learned how to use tools. Rational fear is based upon our necessity to survive, therefore it motivates the subject to react accordingly to real-life triggers. And, when it comes to investing, fear doesn’t only halt your progress and growth – it can also help you make more prudent decisions and avoid unnecessary risks.
Fear is a survival tool, which can be of great service when trying to determine which investment options to choose. But, take note – it’s a tool and only that. Not a method. And, in order to use your own fear to your advantage, it’s pertinent to combine it with research, analysis and patience.
Rational fear is your friend. It can help keep you safe in a bunch of different situations that concern all aspects of your wellbeing. Irrational fear, on the other hand, can do the exact opposite. Irrational fears originate in your imagination rather than relying on cold hard facts. That’s why it can be exceedingly dangerous to your mental state and subsequently influence your decision-making.
While Fear Of Missing Out (FOMO) isn’t exactly an irrational fear, it can often prove just-as-if-not-more damaging to your wellbeing. Even though FOMO is often based upon our personal experiences or the experiences that we’ve learned about from others – like all fear, it has a tendency to alter our thought process, thus influencing our decisions.
Abundance of information, whether it be from your friends and family or from beyond your social circles, is one of the more prominent FOMO triggers. Many of us know one, personally, or at least have heard about the recent success stories of crypto investors, day traders or any other ‘rags-to-riches’ story. The internet is full of them.
And no wonder. These stories are a blast – at the very least, usually a good read or extra motivation for folks looking to get into investing. However, for someone who doesn’t yet know much about investing, but is ready to make bank – these stories can get dangerous.
In order to not miss out on a quick increase of capital, such investors may be prompted to invest quickly, without research and planning. All for nothing more than a conviction that if everyone else is gaining returns, so will you. This presumption isn’t that incorrect, either. The problem arises from the fact that FOMO often makes you mistime your actions. Typically, someone that invests in order to not miss out is buying in too late to make significant returns before the eventual downturn.
It’s not just novice investors that have to take care. Sprinkle a little greed there, a little fear here – and we all may react the same, experienced or not. Fear of missing out can stray you from your well-planned investment strategy. It can relocate your already safe and profitable investments into uncalculated and badly timed investments if you’re not vigilant.
How to tame your FOMO?
First, just sit down, take a deep breath and relax. Everyday tempo of modern life can be a lot to handle. We’re all going through similar experiences in a way and speed that can and do cause anxiety. So, before even thinking of accomplishing anything, be it investments or other tasks and goals – try to calm yourself down. This should help you temper your fears.
As for investing, FOMO can be avoided if you create a plan or strategy for your investments. And then stick to it. Creating such a plan includes determining your risk tolerance as well. Knowing your risk tolerance should help you draw a line for riskier investments, thus avoiding FOMO-induced decisions entirely.
Your investment strategy should focus on your goals, either short-term, mid-term or long-term. If you practice due diligence and know both the asset you’re investing in, and the risks associated with it – you’re much more capable of holding your investment in case of a downturn, instead of dumping it out of fear.
If you do want to get into the same things that have spelled success for others – do it with caution. A safer way to invest in popular assets is investing in index funds or ETFs. This is an easy and affordable way to achieve diversification. So you would not miss out on most anything, as well as reducing some risk.
Another way to work around fear of missing out is dollar cost averaging. This investment method allows you to get in on the action while reducing some risks. The main benefit here would be that you don’t invest a large chunk of your money out of FOMO. Instead, you make regular, smaller investments that help you reduce the impact of price volatility.
If you think about it, fear of missing out is often triggered by the success stories of others. These stories look great ‘on paper’, but remember – usually you only know what the storyteller wants you to know. So, if you really like what they’re ‘selling’, do yourself a favour – perform due diligence before making any investments. Do your own research. Do the maths, whether this investment goes along with your strategy and according to your goals.
Fear is normal and nothing to be ashamed of. We all suffer from it, in one way or another. But, it’s up to you to tame your fears. Don’t let fear manage your portfolio.