Financial advisors say that the fear of missing out can cause investors to lose money.
A group of British psychologists defined a fear as "that others might be having rewarding experiences from which one isn't present." Josh Brown uses the term " animal spirits" to describe the idea of investors being able to guide their emotions.
Social media platforms bombard users with messages about "hot" investments such as cryptocurrencies, meme stocks and SPACs. The experts and influential people who promote such assets claim buyers can earn bundles of money, but they may downplay the risks or fail to reveal their own motives.
It isn't to say that flavor-of-the-day investments are always a flop for buyers. It's a problem that investors only hear about the big winners.
Morgan Housel, author of "The Psychology of Money", said at the Future Proof wealth conference in Huntington Beach, California, that controlling FOMO is the most important financial skill these days.
It is more prudent to get rich slowly, since investments that offer huge growth potential also tend to carry more risk and therefore bigger odds of loss.
"People try to hit the home run, which is like winning the lottery in investing."
It was easy for investors to make money in the year of 2021. A million new millionaires were created due to strong stock andcryptocurrencies.
The hype-men and women of social media helped convince investors to buy.
There is a chance that the price of bitcoin could go up by 20% or more in a day after a single message from Musk.
There was a frenzy in meme stocks on the WallStreetbets community. One of the hottest trends on Wall Street was the endorsement of certain SPACs by celebrities like Jay-Z and Serena Williams.
If investors bought in and sold at the same time, it could cost them a lot of money.
In November 2021, the price of the virtual currency topped out at $69,000, more than doubling in a year. It has plummeted to around $19,000, about the same price as before. In the span of a half hour, the share price of GameStop fell 40%.
An investor alert was issued by the SEC last year.
The SEC said that celebrities can be lured into participating in a risky investment. It's not a good idea to invest in a SPAC just because someone famous sponsors it or says it's a good investment.
In the past year, the CNBC index has fallen more than 60 percent.
Housel said that most people have high risk tolerance in a bull market.
Financial advisors try to discourage investors from succumbing to FOMO by playing off future regrets.
Aldo Vultaggio, chief investment officer at Capstone Financial Advisors, likes to discuss with his clients their likelihood of success reaching certain financial goals with and without assets. The firm is located in the state of Illinois.
If a client is on track to have enough money to retire comfortably or afford a child's college education, then why take more risk?
The fear of failure deters clients from investing in the short term.
Why don't you invest in these assets? They want to do that because they could potentially make more money. Why would you do that if you don't have to?
He said that the ship is on course for success. We want to make sure you don't take yourself off course.
He told clients who are adamant about holding a FOMO-type allocation to a risky asset that they should generally limit their position to a low- single digit percentage of their overall holdings and they shouldn't invest with money they'll need in the near or intermediate term.
Investing in stocks, bonds and other asset classes carries some risk, but it is a calculated risk that has a long history of success, according to a financial advisor.
Maloon said that clients have to know that this is their gambling money if they want to buy hot stocks. We don't want to depend on this for retirement.
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