Beginners in investment tend to make decisions that are linked to the psychological concept of FOMO, or fear of missing out. Instead of focusing on their goals, investors pay heed to the market noises that may cause lots of damage to their investment and even mental health. If you have just stepped into the market, try your best to stay away from FOMO and start investigating more sustainable investments.
FOMO – the enemy of sustainable investment
Fear of missing out is the feeling of apprehension that one is either not in the know or missing out on information, events, experiences, or life decisions that could make one’s life better. When it comes to investments, FOMO can strike when there is a big rally or investment trend that the news or traders are talking about. Generally, it means that a trader is feeling anxiety because others are making money on an investment’s price movement, and they’re not. But the desire to be part of the bandwagon and make money off the trading strategy others are profiting from could create a retail investor or an institutional trader to enter a position before properly analyzing it to determine if it is a good investment.
The question here is despite the risk of buying high and selling low, many people joined these rallies anyway. Why? The psychology of FOMO is linked to complicated reactions of our brains that we cannot easily understand. However, they all form some typical actions and thoughts that we can realize in all traders. First, watching others make a lot of money on a particular stock or token having a massive rally may make you feel obligated to join in and get in on the gains, even if the logical part of your brain is telling you that the highest rate of interest has already been passed.
Additionally, knowing that acquaintances have already had a financial breakthrough with a particular investment can give you an unfounded sense of confidence about your investment choice, which could result in you ignoring advice from investment experts or research analysts you often take. Something deep down in your mind says that you are more likely to lose money trading than you are to profit. However, when thousands of traders talk about how they benefited from one coin/stock, the feeling of losing or being a fool for not catching the opportunities still encourages you to go ahead. It generates emotional responses; things like fear and impatience win out over discipline.
The sad consequences of FOMO
People always act out of FOMO with the wish of changes in their financial situations or early retirement. However, FOMO often brings more risks than rewards.
The common investment mandate is to buy low and sell high. But FOMO in trading often works contrary to that as it encourages investors to buy when stocks are already high. Remember that just because stocks are performing well does not mean that they will continue to do so in the near future. In fact, many investors lose money by investing in price movements or market trends right before they’ve run their course. That’s why trading does not often result in a positive return on investment when spurred by feelings of FOMO.
Moreover, the hidden risk of FOMO is higher than just a regular investment decision. FOMO-related decisions often happen on highly hyped investments like meme stocks or cryptocurrencies. They are potentially inflated like bank savings and leave you without a dime. The volatility of meme stocks and cryptocurrencies and the speed at which their prices change make them even riskier than traditional investments. You could be distracted for less than 30 minutes and come back to see that your portfolio has cratered, or you could have a meeting at work while it goes down 40%.
Another trend of FOMO investment is buying a stock with an extremely low price, hoping it will reach its peak, and so do your life. Trends like this often happen when a high and popular stock drastically drops its price for some sudden event. People tend to spend their money on these stocks with the expectation that they will be back to the top. However, not every project has the power to return to its victory. The case of Luna, which was once considered a sustainable coin, is an example. When Luna was at its bottom, thousands of discussions, memes, and news covering its future recovery were spreading over the internet and creating a massive FOMO. Even homemakers would like to invest in it. However, it broke investors’ dreams into pieces as it kept dropping and showed no sign of recovery. Despite its hidden absurdity, it is evident that FOMO is still successfully persuading investors to destroy their investment efforts.
Start safe investment, and stop FOMO!
There are a bunch of reasons why people tend to follow FOMO: they may feel unsatisfied with their current lives, they are too dependent on social media, or they have not gained enough investment knowledge. Nevertheless, the most popular reasons mainly relate to the wish to handle their financial problems. It is evident that FOMO primarily works for people interested in short-term rewards. However, even such low expectation is not always possible to achieve. Therefore, the need to resist the temptation of FOMO should be a priority in investing. The most sustainable way to do so is earning yourselves a passive income that comes with security and peace of mind. For instance, passive income from a secure investment may be the best medicine for your FOMO addiction.
Passive income is also a good choice for people who have experienced the bitterness that FOMO brings up. Ultimately, you may not be able to build a time machine to take you back in time to purchase the stock that got away or that property that would’ve made you millions. But you can take steps in the present to “recover” and reach your long-term goals safely and sustainably.
Let’s take a closer look at some of the most sustainable investment choices. They may not all be appropriate for you today, but over time, the best investments for your needs can change, and you may feel grateful when having spent time digging into them.
How to Earn Passive Income with Foundation Capital
If you want to generate a sustainable passive income stream, Foundation Capital is one of the most reliable organizations to invest in. Our process has been refined, perfected, and proven over the past 12 years of renting our clients’ assets to the construction industry.
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