Financial FOMO Proofing
Our goal should be to become a better version of ourselves and not about comparing how others are doing
The first paper on the “fear of missing out” (FOMO) was first identified in 1996 by marketing strategist Dr. Dan Herman, who in 2000 published it in an academic paper titled “Introducing short-term brands: A new branding tool for a new consumer reality” in The Journal of Brand Management.
Patrick McGinnis coined the acronym and popularized it in the Harvard Business School magazine The Harbus, in a May 2004 article called “Social Theory at HBS: McGinnis’ Two FOs.” It called the other FO the “fear of a better option” (FOBO). In 2013, FOMO was officially included in the Oxford English Dictionary.
A study estimates that about 70 percent of all adults in developed countries suffer from FOMO. Wikipedia basically defines the term as a social anxiety that includes fear of regret, leading to concerns that one could be missing an opportunity to interact with others or experience events, or even miss a once-in-a-lifetime profitable investment.
It used to be called keeping up with the Jones. With real-time social media updates FOMO has become more pervasive than ever. It leads to being jealous of others, dissatisfied with one’s own current situation, and ultimately bad financial decisions.
Here are some ways to reduce FOMO on your finances:
- Have a long-term plan in place. FOMO investing happens when you don’t have your own time-tested investing strategy. You try to seek what is in vogue and follow hot tips. One way to mitigate it is having a specific financial plan in place. If it is not in your plan, then you should not simply participate.
- Have an objective criteria in choosing your investments. You can have a fundamental and technical criteria in deciding when and what to invest in. This will reduce your chances of buying on impulse and blindly following the herd.
You can also have a separate speculative fund where you only put a small amount you are willing to lose. Benjamin Graham in The Intelligent Investor said: “Never mingle your speculative and investment operations in the same account, nor in any part of your thinking.”
- Know why you want to get in and why it is a bad idea. Know why you want to get into an investment. Look at the risks and not just the returns. Match it with your long-term objectives and criteria. Write your reasons for buying and take some time to ponder on them. Try to test them by arguing against them. Doing this would screen out a large portion of FOMO investment ideas.
- Find alternative investments. When you only know of one investment option, you are more likely have the “it’s now or never” mindset. But if you have a lot of investment opportunities that comes to you regularly, you would realize you do not need to rush any investment decision. There will always be a next one.
- Always stay invested. If you are always invested, you’ll never miss out. One good way to stay invested is buying and holding an index fund. It will track the ups and down of the market. You can celebrate when the market is up and add to your investments when it is down.
- Learn about behavioral finance. As humans, we are greatly affected by emotions. One flaw that causes FOMO is envy. Warren Buffett has said “it’s not greed that drives the world, but envy.” Charlie Munger has said envy and jealousy occupy two of the 10 commandments. “It’s a really stupid sin, because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun.”
Envy and jealousy are bad features for investors to have. It may seem as if others are doing much better than you and doing it with ease and you think it is unfair. But provided you are following your own rules, there is no need to take additional risks. Trying to avoid being envious is not easy, especially in the interconnected world we live in.
In keeping up with the Jones, most people have this tendency to take on more risks than they usually would and could afford just because their neighbors or friends also did.
Investing successfully is repeatable and not simply a once-in-a-lifetime event. It depends on each person’s level of competence, experience and risk tolerance.
Know that you will have more than one opportunity in your lifetime. Our goal should be to become a better version of ourselves and not about comparing how others are doing. If we can do this, we will be more content and able to make better financial decisions.
Josefino Gomez is a Registered Financial Planner of RFP Philippines. He is also a certified public accountant, a certified real estate broker and a certified treasury professional.
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