If you’re like me, the stories of people who turned small amounts into millions during the recent surge in Gamestop investments may have made you jealous. If only you could have got in on the first floor. Or maybe you’ve been wondering if it’s too late to jump on it. You may even have bought in when GameStop stock was trading at $ 100, only to see a rise and a rapid decline in the days that followed.
There is one element in common in all of these cases: a feeling that something big was going on, that you weren’t part of it, and that you somehow missed it. There is a desire to step in, be a part of it, even knowing in the back of your mind that this may not be a great idea.
It’s the fear of missing out. It’s real and it’s about more than just investing.
What is FOMO (fear of missing out)?
At some point we all felt the fear of missing out. You hear something interesting is going on, something that seems potentially exciting and profitable. You may not know all the details, but it seems exciting and, worse, the window of opportunity to jump on board may close.
That’s the fear of missing out. Without feeling afraid that our chance might pass, we would likely skip the opportunity, or at least delay our decision for a while.
What is FOMO’s financial threat?
The financial danger with FOMO is that you end up spending money on something without properly considering it. Because you’re scared of missing out, you overlook some other red flags about the opportunity and get on anyway.
Sometimes this can work well, but since you’ve overlooked some red flags, there is a higher than normal chance that these costs will be regretted in the long run. It is these regretful expenses that have clearly been bad uses of money that ultimately create financial danger because there are so many better uses for your dollars than regret expenses. For example, you practically never regret having to work out debt or build an emergency fund or save for retirement or save on a down payment.
As FOMO shows when investing
The fear of missing out on investing shows up when there is a particular investment that is either doing exceptionally well right now or that someone believes you are about to do exceptionally well. This means that there is a group of investors who are either making big bucks or are going to make big bucks and you want to get in on it.
The problem is, by the time you learn about a great investment opportunity, often the chance to make a profit has passed. In fact, you would just buy high instead of buying low and selling high.
FOMO, GameStop and Dogecoin
The most recent examples of FOMO in the investment world are the recent success of retail investors buying into GameStop stocks and recent increases in value in some cryptocurrencies, particularly Dogecoin, a cryptocurrency like Bitcoin that has seen a similar surge recently. Either way, a handful of early investors made big money, and some later investors did quite well too.
It can be very tempting to get involved in such success stories, but most of the time the window closes or is closed for a great return as soon as such a story becomes big. GameStop became a big story when it hit $ 200 per share, and after a few days of intense volatility, it quickly fell below $ 100 per share. Dogecoin quickly rose from less than $ 0.01 per coin to more than $ 0.08 per coin in less than a week, but as soon as it became known it fell back to the $ 0.05 level.
These investments would have been an excellent opportunity to start, but as they grew into great new stories they were at or near their peak and the people who had shopped at the time were holding an overpriced investment.
How to Avoid FOMO When Investing
What can you do to avoid the fear of missing out while investing? Here are four key strategies.
Don’t worry about speculation when it’s big news
If you hear about a hot new investment on the news, chances are that the investment has already increased in value many times over, and that increase is justifying the news reports. This was clearly the case recently with GameStop and Dogecoin. There’s not much to say at Gamestop about an electronic game retailer with a share price around $ 5, but if it suddenly climbs to $ 100 a share, there is something to talk about.
The catch, of course, is that by the time it’s interesting enough to cover it, the “buy low” window in the traditional “buy low, sell high” maxim has already been passed. It’s “high” right now and the best you can hope for is “buy high sell higher”. It’s rarely a good idea. Most likely, when someone else who bought low sells high, you will be the buyer. You don’t want to be there.
Don’t invest in what’s on the news. In fact, you should completely avoid investing based on news and pop culture. Most of the mainstream media coverage of investing is just ado about what an individual investor should be doing. So treat them accordingly.
Don’t invest in a friend’s word without additional evidence you understand
What if a friend comes to you with a hot investment tip? Meanwhile could Investing your money is nowhere near enough as a starting point for your own study of an investment strategy.
Where did your friend get this information from? Is your friend’s source trustworthy and can you verify the trustworthiness of that source without your friend vouching for it? There are many shady investment deals out there that are spread via word of mouth, such as: B. the fraud with pump and dump stocks. Your friend could well be well meaning while he is still the victim of such a scam.
Simply put, do not put your hard earned money into an investment recommended by a friend unless you can do completely independent research on the subject and fully understand what you are investing in. If you are unsure of how to invest, there is no better time than today to learn more about investing.
Use index funds and a buy and hold approach
Instead, what should you do if these are things to avoid?
The best approach to investing for most individual investors who do not have enough time or knowledge to thoroughly research investment opportunities is to buy index funds and hold them until you have to sell them. An index fund is a very easy way to fully diversify your investments so that you can, for example, buy a small fraction of all publicly traded stocks with a single purchase. This enables you game the stock market with very low cost. While you can still see your investment go up and down, you will not see your investment lose most of its value in the long run.
Invest in riskier things only with money you can afford to lose
If you’re really tempted to buy your way into the next GameStop, do so with money that you can totally afford to lose – your hobby and entertainment money. Don’t use money that you would otherwise use to pay off debt or save for retirement or save for your child’s college education. That money should be invested in more stable and reliable assets.
If you want to speculate, treat it as entertainment and only lose money that you can afford to lose as entertainment without disrupting your retirement savings.
We appreciate your feedback on this article. Contact us at the Inquiries@thesimpledollar.com with comments or questions.