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FOMO & Your Finances

by Anne McFarland, CFP, CMC

FOMO or Fear Of Missing Out isn’t just for teens scrolling their social media accounts to make sure they are in the know on everything. We see it even in much more mature people in an area of their financial life that might surprise you – their savings. Typically, we see this when someone has cash in an account and they are wondering if they are “missing out” on returns by not investing that money. The news can feed this fear with headlines about how those who invest aggressively are getting exceptional returns.  We remind these clients to consider the flip side. When the stock market is down by 30-40% and your overall portfolio has an appropriate amount of safe and secure investments, you have the cash available to purchase investments at lower prices… now, who is missing out?

FOMO is fueled by not just by news and friends sharing their great wins from the stock market but by another phenomenon called recency bias where the things which we have experienced most recently are the ones we recall.

Consider this situation:

The stock market has had a 10-year surge and is still continuing to rise. Real estate in Asheville is still booming. Asheville is still a top tourist destination. All of this is great news for those of us invested in the market and living in Asheville, but how might this change? We see the market surging and start to believe it will continue on its current trajectory. History tells a very different story indicating there are cycles in the market and at some point, what goes up always seems to go down, at least temporarily.

Recency bias and FOMO can cause any of us to make snap decisions which may or may not be in our best interest. That is what we want to help you avoid, making a snap decision. Together, with our clients, we select an investment allocation target which is appropriate for their risk profile and financial lifecycle stage. We want to come back to this target regardless of what the market is doing. This helps to avoid against making decisions based on recency bias and FOMO while keeping balance and the long view in mind.