FOMO or the Fear Of Missing Out is such a powerful force that even Warren Buffet addresses it. This phenomenon will have people doing all sorts of ridiculous things when it comes to their finances. In fact if it was not for FOMO I would be willing to bet all of Derek’s money (you’re welcome) that the majority of the financial talking heads would not have a job.
For those of you that are already scratching your heads, this post wasn’t written by mwah, rather by Brandon, an awesome writer that literally came out of nowhere. Hopefully we’ll see many of his posts in the future. Enjoy this wicked awesome article below.
FOMO – The Fear of Missing Out
I have seen this first hand early on in my personal finance journey and to this day I can hardly believe what I witnessed.
I had opened my first non-tax advantaged investment account over at Motif Investing. Motif allows you to build your own “mutual fund” and like the infantile investor I was I chose companies that I liked. One of those companies was the all-powerful Netflix and in 2015 they were having a bit of a good year. I commented to a coworker that my Netflix stock had gone up 10% in the 2 or 3 months I’d owned it.
Based upon this white hot stock tip from my infantile mouth, that colleague proceeded to buy $25,000 of Netflix stock within the next hour…
My jaw dropped.
I owned .04 of a share worth all of $24.70 at the time.
Based on my immense stock wisdom and large stake in the company (insert sarcasm here), this individual made a purchase of over 1,000 times my position! Why would they do this? Did they think I was the next genius investor who could pick stocks as easily as Michael Bay chooses where/when to place explosions? (Hint: the answer is everywhere and all the time).
I sincerely doubt that was the case. The answer is simple; FOMO. He had a fear of missing out.
This otherwise financially savvy individual made the choice to move some people’s annual salary on a whim just because I had made a few bucks. He had the fear of missing out.
This happens all the time and it is one of the greatest causes of people’s finances taking a beating. The most recent culprit of FOMO is Bitcoin. I want to be abundantly clear before I receive brow beatings from Bitcoin’s many, many fervent fans that dwell on the internet:
THIS IS NOT YET ANOTHER ANTI BITCOIN POST!
Bitcoin is not the villain in this story. I already told you that FOMO is the problem and Bitcoin is merely the latest thing people are scared of missing out on.
It’s Time to “F” FOMO
People are taking out mortgages just to invest in something they barely understand! They’re so terrified of being the person in the office that didn’t chip in on the winning lotto ticket that they are sacrificing everything they have.
Bitcoin, and Netflix before it, can be good investments…if you understand them. Choose your investments based upon your knowledge and belief that they are the right thing for your portfolio, not because everyone else is making a killing. “F” FOMO. Seriously, just forget it. Getting wealthy rarely involves FOMO, so be careful with betting your livelihood on a statistical improbability.
One last word about Bitcoin before I move on. Bitcoin is neither a good investment nor a bad investment; just like the majority of investments. Bitcoin is only as good of an investment as its place in your overall portfolio. If you are a believer in blockchain or Bitcoin as an investment and have a theory/reason on why you believe its market value is below its true value then you have my blessing to invest in it. For whatever that’s worth.
Personal Finance Should be Fun, Right?
Part of the reason the lotto and FOMO is so powerful is because it’s fun to imagine hitting the jackpot. I’m right there with you. Nothing gets my heart racing like seeing my individually chosen stock go up $.30. Never mind the fact my index fund just gained $2.00 and paid out $1.20 a share. That’s boring.
This is why I believe in having fun investment money built into your savings/investing goals. Every month I take a relatively minor percentage of the money I invest and I place it in investments that are fun or FOMO based. Part of giving yourself the best chance to succeed is building your finances around your life, feelings, and goals. By taking a portion of your money for investment and throwing it at a fun investment, you can appease both your fun side and your goal side.
The trick to doing this properly is that your “sound” investments come first! Do not take money away from the investments that are your base strategy unless you are willing to adjust your goals. Use no more than 10% of your overall money for your “fear of missing out” investments. You can be both a FOMO investor and someone who is taking steady steps towards their goals. No matter what your financial Guru of choice (except me!) tells you, it is possible to do both.
What is your FOMO investment of choice?
(FYI – Derek’s answer was Coach for a while, but then he got boring and decided to just invest in real estate. ;))
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.