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The “fear of missing out” on a lucrative investment is real – but so are the consequences of playing a high-stakes game. Avoiding the investment risk is simple: allocate a bit of “play money” towards speculative investments but stick with the tried-and-true method of a diversified global stock portfolio.

In case you haven’t noticed, “investing FOMO” is everywhere.

The “fear of missing out” on a lucrative investment is real, especially with all the shiny new objects entering the investing world: Bitcoin, Dogecoin, NFTs, GameStop, and IPOs. Heck, investing FOMO has even made it into the playground, with parents talking about the latest in cryptocurrency, IPOs, and stock trading. Everyone wants a piece of the pie!

Watching friends and family rake in the returns from the sidelines, I get it. Sometimes, I feel like my 100% global stock portfolio is a boring, “riskless” portfolio of GICs. How can I possibly compete with quadruple-digit crypto returns and newly minted NFT millionaires? And where’s the adrenaline rush in ETFs?

But I’m here to tell you that it’s perfectly normal to have an emotional stake in your investments, whether you’re actively participating or not. FOMO is real, but it can be tamed by designing some rules around your speculative behaviour. I know, rules aren’t as fun as throwing caution to the wind and investing in the latest digital token. But you can have fun while most of your investments do the boring, steady, long-term march towards your retirement goals. Here’s why and how you should curb your investing FOMO.

What’s fuelling the FOMO?

There are a lot of factors driving the fear of missing out in the investing world.

The stock market has been on fire for the past 20 months, and this roaring bull market has exacerbated the FOMO. No one wants to leave money on the table.

The pandemic doesn’t help. Bored and stuck at home, many people are dabbling in day trading and playing the stock market for fun. Since March 2020, there’s been a stampede of investors turning to discount brokerages to try their hand at DIY investing. Wealthsimple Trade, for example, reported that new users increased by 80 percent between July and December 2020. Likewise, Questrade reported a surge in trading activity during the pandemic. It’s led concerned financial experts to issue PSAs about investors not getting caught up in market highs and blowing all their “play money.”

At the same time, it’s easy to get distracted when “alt investments” are gaining traction. Just look at cryptocurrency. Bitcoin is up 577% since March 2020, while Ethereum is up an incredible 2,157% over the same time frame. Even Dogecoin had its day in the sun. Those returns are enough to make any cash-strapped person salivate.

Some individual stocks like Tesla are up big, with the electric car maker’s stock price rising 815% since March 2020. Meanwhile, the meme-stock darling GameStop is up an unbelievable 4,450% over the same time frame.

gamestop

The latest craze is something called NFTs or non-fungible tokens. One of these digital art pieces sold for a record $69 million in March 2021.

With eye-popping returns coming from everywhere, it’s easy to see why investors have major FOMO. Everyone seems to be jumping to get a piece of what’s trending, simply because they fear missing that “once in a lifetime” opportunity to “win” big.

Social media is a big part of the problem. Young investors get their investing tips from TikTok “Finfluencers”, follow the antics on “FinTwit”, and get stock advice from the Reddit group WallStreetBets. Combine that with the rise of free stock trading apps that have made it easier for investors to day trade and you’ve got a recipe for trouble.

The risk of investing in “fads”

Watching others hit the jackpot takes its toll. After overhearing a Dad in the daycare line up humblebrag about his Bitcoin gains or your friend talking about getting in early on the Airbnb stock, you may feel tempted to jump on the bandwagon. It seems so easy to get rich quick on a dime!

But there’s a danger to giving in to these impulses, as FOMO can cause investors to make riskier choices and lose in the long term. From the frontlines of financial advising, I can give you a few real-life examples.

A family friend sent me a text earlier in the year asking about the cryptocurrency Ripple (XRP). He said his friend invested in Ripple and made quite a bit of money, so he was thinking of throwing $500 into it to see what happens.

ripple

I asked how he would go about investing in Ripple and what his goals were if he made or lost money on it. To be clear, there’s nothing wrong with making a speculative bet as long as it’s with an amount you can afford to lose. But treat this more like casino money and less as an investment.

I share this story because it’s an all-too-common theme with investing. You hear a hot tip from a friend or co-worker who made a bunch of money with a particular investment. By the time you hear the news, the investment may have already peaked and is on its way down (Murphy’s Law, am I right?).

So, what happened with Ripple? The family friend texted me about it on April 15th, which just so happened to be the peak price for XRP this year. Since then, the price has gone down by 38%. At one point, in July, Ripple was down an ugly 71% from its previous high. Ouch!

ripple

Okay, so his hypothetical $500 investment would have been worth $149 in July and, if he managed to hang onto it until today, would be worth $310. Hardly a budget-breaker, but probably still stings.

I know that investing FOMO is running wild these days because I’m getting more and more questions like this from friends, blog readers, and from my financial planning clients.

One prospective client was looking for a reality check (and possibly some therapy) after revealing that he quit his job, took out a $1M line of credit, and started day trading. His area of focus was on SPACs, or Special Purpose Acquisition Companies. I’ll spare you the details, but these companies operate like ‘blank cheque’ companies with no actual business operations. They’re publicly traded, but their sole purpose is to acquire a private company and make it public without going through the IPO process.

Anyway, SPACs were all the rage in late 2020 and early 2021. These SPACs would ‘pop’ as soon as they acquired a private firm, sending the price soaring. That is, until it stopped working. When this prospective client called me, he had several positions that were under-water and his $1M portfolio was now worth $700,000. Oops.

The crazy thing about this story is the guy was a committed and die-hard index investor for 10 years. He let his friend talk him into investing in one SPAC, and when that price ‘popped’ they did it again and again, thinking this was such an easy way to make money.

How to curb your investing FOMO

We can’t all be emotionless robots when it comes to investing. That’s why I recommend designing some simple rules around any speculative investments you plan to make. Here are three to consider:

  1. Don’t invest more than 5% of your portfolio into something speculative like cryptocurrency or individual stocks. So if you’ve got a portfolio of $50,000, that would mean allocating $2,500 for play money.
  2. Better yet, carve out some new money out of your entertainment budget rather than from your long-term retirement portfolio. Speculating is entertainment, after all.
  3. Finally, determine your exit strategy. For instance, if the price doubles you can sell half and either spend it on something nice or add the profits to your main investment portfolio. Conversely, if the price drops by 50% consider cutting your losses and salvaging the other half of your money.

There will always be something shiny and new to distract investors. The problem we all face is that we can’t replicate an investment’s strong past performance by investing in it today. We can also find trouble by getting carried away with speculative investing and by using leverage. Be careful.

The last word

I am an emotionless robot when it comes to investing. I curb my investing FOMO by reminding myself that my portfolio invests in 12,000 stocks from around the world, so I own a small slice of nearly every publicly traded company in the world.

But I can also be a bit impulsive, so by staying invested in a single asset allocation ETF and ignoring all the distractions around me, I know I’m protecting myself from myself. That’s as important as any quality in a good investor.

Ultimately, I’m not missing out. Whenever I get a twinge of investing FOMO, I remember that my so-called “boring” 100% global stock portfolio is up 65% since the bottom of that brief bear market. I can live with that.

Evidence-Based Guide to Successful Investing

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