Home » Fear of missing out can be a killer for investors. How top advisors keep it at bay

Fear of missing out can be a killer for investors. How top advisors keep it at bay

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Fear of missing out, or FOMO, can be a powerful psychological force that can cause unwary investors to lose big bucks, according to financial advisers.

British psychologist group defined FOMO is fear as fear that others may be experiencing rewarding experiences that you lack. Financial Advisor Josh Brown said:animal spiritsexplains the concept that investors are guided by emotion.

These days, social media platforms have become a big source of FOMO, sending users messages about “hot” investments like cryptocurrencies, memetic stocks, and special purpose acquisition companies (SPACs).Influencers and experts who promote such assets claim that buyers can earn bundles of money, but the risks and don’t reveal your motives.

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This is not to say that flavor investments of the day will always flop, depending on when the buyer buys or sells. The problem is that investors often only hear about big winners and don’t listen to duds, advisors and experts.

At the Future Proof Wealth Conference in Huntington Beach, Calif., in September, Morgan Housel, author of The Psychology of Money, said controlling FOMO is “perhaps the most important thing in the age of social media. financial skills,” he said.

“People try to hit home runs”

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‘Getting rich slowly’ is generally more sensible, as investments that offer huge growth potential tend to carry more risk and therefore have a higher potential for loss. Accredited Financial Group.

“People try to hit home runs. [winning] The Altamonte Springs, Fla.-based company was ranked #95 on CNBC in 2022. Financial Advisor 100 list.

It’s been relatively easy for investors to make money in 2021. Big gains in stocks and cryptocurrencies Minting 1 million new billionaires.

Last year, various hype and social media communities helped drive investors to buy.

For example, the price of Bitcoin could skyrocket 20% or more in one day Following a single tweet from Tesla and SpaceX founder Elon Musk. February 1, 2021 Tweet It imbues another cryptocurrency, Dogecoin, with a kind of one-size-fits-all quality, calling it “People’s Crypto.”

The WallStreetBets community on Reddit also provided a feed The craze for meme stocks like GameStop and AMCCelebrities such as rapper and music producer Jay-Z, NBA player Stephen Curry, and tennis genius Serena Williams. also supported Certain SPACs — investments that are quasi-initial public offerings — and, until recently, One of Wall Street’s hottest trends.

Depending on when the investor traded, the FOMO I could have paid them a lot of money.

For example, the price of Bitcoin is reached nearly $69,000 By November 2021, it will more than triple in one year.Since then, it has plummeted to around $19,000, about the same price as it was before the dramatic rise. 40% off in 30 minutes.

The Securities and Exchange Commission last year Warning to investors About celebrity-backed SPACs.

The SEC said, “Celebrities, like others, may be tempted to participate in riskier investments or may be better able to sustain their risk of loss.” It’s never a good idea to invest in a SPAC just because you have it or say it’s a good investment.”

The CNBC Index, which tracks SPAC trading, is Decreased by more than 60% over the past year.

“I think very few people understand their risk tolerance and their sense of future regret until things get worse,” Hausl said, adding that in a bull market everyone has high risk tolerance. added.

How Advisors Overcome Investor FOMO

Shaking off that future regret is how top financial advisors try to discourage investors from succumbing to FOMO.

If a client wants to transfer large sums of money to FOMO assets, Capstone Financial AdvisorsBased in Downers Grove, Illinois, the firm is on CNBC’s Financial Advisors 100 list. was ranked 77th.

In other words, if the client already has enough money to comfortably retire or afford their children’s college education, why risk more?

Fear of future failure can help discourage clients from making short-term investments – or at least reduce their overall allocation to it.

“Why invest in these speculative assets? They generally want to because they have the potential for higher returns,” Vultaggio said. “But if you don’t have to do it, why do it?”

“The ship is heading for success here,” he added. “We don’t want to do anything that strays us off course.”

Vultaggio advises clients who are adamant about holding FOMO-type allocations to riskier assets, typically requiring positions to be restricted to a low single-digit percentage of total holdings, and investing with the necessary funds. I am telling you that you shouldn’t. Short or medium term, he said.

Investing in stocks, bonds, and other asset classes always involves some degree of risk, but it is a calculated risk and generally has a historical track record of long-term success, according to The Sun, Calif. Madeleine Maroon, financial advisor at California Financial Advisors, a company based in California, said. Ramon, California, Ranked #27 on the CNBC Financial Advisor 100 list.

“I need something that has a game plan, but these hot stocks, cryptos, whatever it is, [clients] You have to know that this is their gambling money,” Maroon said.

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