The fear of missing out, known as “Fomo”, is a common trait.
It is the instinct that makes you think everyone else is doing something, so you should too. It can cover anything from a popular holiday destination to the type of boots you wear.
Usually, the fear is relatively harmless, and, at the worst, may result in a disappointing travel experience or a few blisters on your feet. But when the fear of missing out involves major financial decisions, succumbing to it can prove dangerous and could result in you losing a lot of money.
Read why professional sportspeople such as rugby players are targeted with Fomo investments and how you can avoid making choices that risk your long-term financial security.
Fomo is driven by emotion rather than logic
Typical offers that may prompt the fear of missing out involve promises of high financial returns in a short space of time, provided you act now to take advantage of a short-term opportunity.
The reality usually means investing your money in a highly risky, if not illegal, asset. It may even be a “Ponzi” scheme where there is no actual asset at all, and all new subscriptions are used to pay initial returns, before the money eventually runs out, leaving you with nothing.
Most importantly, you will be given the impression that many other people are profiting, maybe even fellow rugby professionals who you know in the game.
The fear of missing out can be particularly dangerous because it is driven by emotion rather than logic, research, or a solid financial strategy.
An emotional approach can easily lead you to make an investment decision based purely on hype and can result in you suffering significant financial losses.
4 strong reasons why Fomo investments can be so dangerous
1. A lack of due diligence could result in an unsuitable investment
Hasty decisions prompted by emotion and excitement are rarely good ones.
In the case of investments, Fomo can often blind you to the reality of what you are actually purchasing, as all your focus is on the short-term nature of the opportunity.
By not carrying out suitable due diligence, you could easily end up putting a potentially substantial sum of money into an investment that is totally unsuitable for your needs.
2. A Fomo investment could be a scam, and you could lose all your money
If you are buying something simply because you are worried about missing out, it may well be the case that you are being scammed.
Investment scammers rely on you making a rushed decision. Indeed, one of the most common scam methods is to rush you with talk about how others are benefiting, and you only have a limited opportunity to invest yourself.
3. Fomo investment assets are usually highly speculative
Even if the opportunity you are being offered is not actually a scam, the fear of missing out can easily drive you to put your money into an unsuitable investment.
In many cases, the value of your asset could easily be eaten away by high charges and the commission payable to the person who sold it to you.
Additionally, many investments that rely on Fomo to persuade you to buy them are highly speculative (meaning they carry a large risk of failure), such as mining companies and tech startups.
4. A Fomo investment could easily upset your wider financial plans
Your financial plan, which includes your investment portfolio, will be carefully structured to reflect your long-term objectives and how much risk you are prepared to accept to meet your goals.
Because of that, putting money into a speculative investment can easily distort your plans. You may use funds that are earmarked to help ensure your long-term financial security, and, as a result, risk reducing the value of your eventual retirement fund.
Keep to your investment strategy rather than making decisions based on emotion
As you can probably appreciate, Fomo investments can seriously damage your wealth. Because of that, you should ensure that all investment decisions you take are based on detailed assessment, rather than emotional reaction.
It is important to stick to your long-term investment strategy rather than reacting to social media content or acting on a recommendation from an unqualified individual.
Always remember the golden rule when it comes to investing your money or responding to an opportunity: if something seems too good to be true, it probably is.
Seek expert advice before making investment decisions
Perhaps most importantly, we would always recommend that you seek expert advice, not only with regard to your investment strategy but also your wider financial plans.
Mistakes can often be hard to rectify, and a poor investment decision can jeopardise your long-term financial security.
If you would like to talk to us about any aspects of your financial plans, please get in touch.
Email enquiries@dbl-am.com or call 01625 529 499 to speak to us today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning or estate planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.