‘Fear of Missing Out’ is real today and is not even sparing investors. In a report published last year, it was observed that around 30% of mutual fund investors are shifting from one fund to another, which experts suggest is a result of ‘Investing FOMO’. While this term sounds fancy, the development of this is undoubtedly not as fancy as one may think.
What is Investing FOMO?
Investing FOMO can be described as the fear of missing out on trading or investment opportunities. Suppose your friend told you that his investment in the XYZ fund generated a 25% return in just a year. You got excited and invested in the same fund without evaluating your risk tolerance and financial goals. After a year, much to your dismay, the fund’s performance is negative. Also read our blog 4 Emotions You Need to Keep at Bay While Investing to learn more.This is a classic example of investing in FOMO at work. Instead of getting higher returns, you lost money. This is the reality of investing FOMO. Investing FOMO, in simple terms, is the greed that makes investors invest in securities just for returns without evaluating risks and other factors. Investing based solely on emotions can lead to disastrous outcomes. In the case of FOMO, the investor’s greed to earn higher returns drives the decision and ultimately ends up in substandard returns or losses.How can you deal with investing FOMO?
Here are some of the best ways to deal with or stay away from Investing FOMO:• Make informed decisions: It is crucial to make informed decisions to avoid being a victim of FOMO. Rather than relying on emotions, you must base your decisions on concrete facts and figures The Advantages of Starting Your Investment Journey Early. This will help you avoid impulsive choices that are not aligned with your financial goals.• Risk Analysis: Your investment choices need to be aligned with your risk profile. Following the above example, suppose the XYZ fund is a small-cap fund with very high-risk factors, and you are a moderate risk-taker. Thus, this fund is unsuitable for your risk profile, but you lost money since you didn’t do a risk analysis before investing in the fund. Therefore, continually evaluate the underlying risk of a particular asset/ investment instrument and whether it matches your risk appetite before putting any money into it. Read our blog How to Effectively Evaluate Mutual Fund Performance to know more.• Diversification: Your friend may generate superb returns from one single fund, but that might not be the right investment approach for you. When you think of long-term investment and generating wealth, you need a proper mix of assets in your investment portfolio. To minimise risk, it’s essential to have a balanced blend of asset classes since each one responds differently to market changes. For instance, gold can be used to hedge the risk of equity investments as both are negatively correlated assets.• Rebalancing of Portfolio: If you have invested because of peer pressure, you might be aware of the importance of tracking your investments and occasionally rebalancing the portfolio. As the prices keep changing, the primary asset allocation level, per your profile, can be disturbed. Thus, it is essential to periodically rebalance the portfolio to have the right mix of assets. If you are investing just to get rid of FOMO and do not track your investments after investing, you will probably end up in losses. Read here 4 Ways to Evaluate the Performance of a Mutual Fund.• Get Professional Help: Finally, if you cannot stop thinking about an investment opportunity but do not know how to evaluate the risk factor or diversify your portfolio, you can seek professional help from investment advisors or financial advisors who can help you analyse your profile and investment portfolio and the investment opportunity you have in mind.Conclusion
While investing is crucial for every individual to build a secure financial future, it shouldn’t be driven by FOMO, but rather by a well-chalked-out plan.FAQ
Quick, blog-friendly answers to common questions.
A Systematic Investment Plan (SIP) is a way of investing a fixed amount in a mutual fund at regular intervals, usually monthly. In real market conditions, SIPs work by spreading your investments across different market levels. When markets are higher, your fixed amount buys fewer units. When markets are lower, it buys more units. Over time, this helps average the purchase cost. SIPs are especially useful during volatile phases because they remove the need to time the market. You continue investing through ups, downs, and sideways movements with the same discipline. Rather than reacting to daily market movements, SIPs help investors stay consistent, build investing habits, and remain aligned with their financial objectives. This structure makes SIPs suitable for investors who prefer a steady, process-driven approach to investing.
A lump sum is when you invest a bigger amount in one go. It’s useful when you have surplus money available now. Returns can vary based on when you invest and how markets move.
Compounding means your returns can start earning returns over time. The longer you stay invested, the stronger this effect can become. Time often matters more than trying to catch the “perfect” moment.
SIP invests a fixed amount regularly, even when markets fluctuate. You may get more units when prices are lower and fewer when higher. This can smooth out the average cost over time.
Diversification means spreading money across different investments. It reduces the impact if one area performs poorly. It can make the overall journey more stable.
Mutual fund investments are subject to market risks. Read all scheme related documents carefully.
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