FOMO is not your friend.

This topic is very important, especially for those not yet in a place to invest. Recently, we learned that 61% of people ages 18-34 are not currently saving for retirement. This is not something that shocks me, nor does it scare me when we consider where young professionals currently are in their very early careers.

There is something that does scare me and I have personally seen people fall victim to it. Yup, you guessed it. It is FOMO.

FOMO or fear of missing out can be a recipe for disaster financially. The current market environment is primed to induce FOMO. We have seen the S&P 500 rise 28% from one year ago, the Nasdaq rise 40% and cryptocurrencies such as bitcoin gain 160% in the same time frame.

Frothy markets always provoke FOMO and this has been the case since the beginning of time. I am not immune to this feeling either. What I try my best to avoid is acting based on the emotions that FOMO brings with it. Usually, FOMO brings something along the lines of “I need to act now, everyone is getting rich, and I am not.”

First off this couldn’t be further from the truth. Not everyone is getting rich. And second off being in a place to invest is a privilege that people must work hard for. The simplest way to put this is that personal finance is personal. Trying to follow the crowd, your peers, or other professionals when you are not ready to do so can lead to you becoming overextended very quickly.

Prematurely entering the market before you have a fully funded cash reserve, a sound plan around your investment strategy, and a stable income can be devastating. Entering the market as it is rising quickly without those fundamental aspects of personal finance covered adds a staggering amount of risk to your financial situation.

The worst-case scenario for people who act on their FOMO is when the assets decline after they’ve been purchased. Ultimately, this can lead to someone having to sell those assets in order to support themselves and they can end up with a lot less than they initially invested. This is never a position that you want to be in.

If someone is spreading themselves so thin to act on their FOMO, we can also assume the amount that they are putting at risk is likely not enough to have a significant impact on them in the case that everything goes right. They stand much more to lose than they stand to gain by putting themselves in this situation.

Compounding favors those who can leave their investments be. FOMO can completely ruin this. Ensuring you have a fully funded cash reserve, an investment plan, and a steady income are all keys to earning the right to invest. Tons of young professionals are in the process of putting themselves in a place to invest. It takes a lot of time, effort, and dedication to be able to invest your money. Do not be discouraged or feel as if you are missing out on what will never happen again. Markets generally go up. Your time will come. There is no reward worth spreading yourself thin in the name of FOMO. 

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Have a more specific question or want to get your finances in order? Feel free to reach out to [email protected] for a free consultation!