What is FOMO and how does it affect our investments?
FOMO is one of the most interesting notions when it comes to investing. It is a very generalized psychological element that must be identified in order to make sound and rational investment decisions. And it is that the fear of losing the opportunity can have generally dire consequences for our well-being and finances.
What is FOMO?
FOMO is an acronym that comes from the Anglo-Saxon expression Fear of Missing Out in other words it means fear of losing the opportunity. It is an element of a psychological nature, a phenomenon that can occur in various fields of life, whether professional or personal, which implies the fear that “the train will leave us”.When we apply it to the economic field, especially investment, it is a feeling that drives us to buy before it is too late. It is based on the fear that the price of that product or asset will rise in the future and prevent us from taking advantage of what is supposed to be a good buying opportunity.In what type of investments is it more common?
FOMO in home buying
Sometimes the fear of losing the opportunity to buy a home can lead us to opt for very low-quality homes, under the premise that “if I don't buy now, when it goes up more I won't be able to buy anymore”.However, sometimes the economy of a certain area or country may be experiencing a real estate bubble, so we will have to borrow a lot, such as a mortgage, which can represent twice the initial cost taking into account interest. FOMO can drive us to buy overpriced homes just so we can afford one.
FOMO in the stock market
There are several strategies to invest in the stock market in the long term. One of the most popular is to buy shares when they are temporarily cheap. However, that's when FOMO tends to affect us. It may be that at a certain moment we consider that the shares of a certain company are at a good price when they reach a certain point. Perhaps months ago it was above that price and now it has dropped to a point where we can believe the buying window has opened.However, if we are late in getting in on the move and the stock price has started to rise or even went off our estimate, FOMO will tell us to buy, even if it is more expensive than we anticipated because then it may never come back again. go down and miss the opportunity.
FOMO in Trading
This is one of the most common fields because a good number of investors, for example, of cryptocurrencies, have been motivated by FOMO under the premise that it was a good investment and that they did not want to miss the opportunity. When the price of a certain currency goes up, they tell you that it is now or never, while if it goes down, now they tell you that it is an opportunity that you should not stop losing.What are the risks of FOMO in investments?Although FOMO applies to various fields of life, we have specifically talked about investments. The fear of losing the opportunity can lead us to make bad financial decisions because it may drive us to buy overvalued houses in a financial bubble context or push us to acquire assets that we have not studied well because we are only led by the opinions of others. Another risk is dissatisfaction and stress. Every time we hear of an investment that we cannot let go, we enter a state of alert where we begin to assess whether we should buy or not, but usually we do not do so with rational criteria but mainly because of emotions. Entering a conflict of two fears: on the one hand, FOMO and on the other hand the fear of being wrong and making a bad decision. Remember that we must combat FOMO in order to draw a good investment plan based on objective criteria. When we design a rational investment strategy, we will have a greater chance of success while having various financial products, such as a instant mini loan that will help us make investments even at times when we do not have sufficient liquidity.
FOMO is one of the most interesting notions when it comes to investing. It is a very generalized psychological element that must be identified in order to make sound and rational investment decisions. And it is that the fear of losing the opportunity can have generally dire consequences for our well-being and finances.