behavioral finance

The Fear of Missing Out: Why FOMO Often Leads to Poor Investment Decisions

Investment Management, Simple Truths About Money, Women and Money / /
FOMO

By now, you’ve probably heard the buzz around SpaceX, OpenAI, and Anthropic. These are companies shaping the future, and the message is hard to miss: you don’t want to sit this one out. That sense of urgency has a name. It’s FOMO, and it’s one of the most common reasons investors make decisions they later regret.

The latest wave is simply the latest example. Fear of missing out has influenced investor behavior for as long as markets have existed, and learning to recognize it is one of the most valuable things you can do for your long-term financial health.

Why FOMO Hits So Hard

FOMO is a deeply human response to uncertainty and social pressure. When an investment opportunity dominates headlines, your brain perceives two threats at once: the fear of missing out on gains and the discomfort of watching others profit while you sit on the sidelines. Both feelings push you toward action, even when patience would serve you better.

It doesn’t help that we’re surrounded by stories of people who got in early on Amazon, Apple, or Bitcoin and earned life-changing returns. What we rarely hear are the far more common stories of people who bought at the peak, endured painful losses, and either sold at the wrong time or waited years just to break even.

Social media and financial news often make matters worse. Consider a recent New York Times headline: “About 20 New Billionaires Could Be Minted by 3 Mega-I.P.O.s.” It’s easy to see how investors can get swept up in the hype.

These platforms are designed to amplify excitement, and emotionally charged financial content tends to generate far more engagement than advice that encourages patience. In reality, widespread enthusiasm is often a sign that an opportunity is maturing, not that it’s just beginning.

The Real Cost of Emotional Investing

A recent MarketWise survey of 1,000 American retail investors found that while only 20% described themselves as emotional investors, 48% admitted to making a FOMO-driven investment in the past 12 months, buying a stock, ETF, or crypto at an all-time high. A full 42% of those investors said they lost money as a result, with an average loss of $1,606.

Meanwhile, research by Barber and Odean found that the most active traders, often driven by FOMO and overconfidence, underperformed passive investors by 6.5% annually on average. That’s not a small gap. Compounded over decades, that difference can mean the difference between a comfortable retirement and a stressful one.

The core problem is timing. FOMO tends to peak exactly when prices are highest, after a big run-up, when the story feels most compelling and the momentum seems unstoppable. However, also tends to be when the risk-to-reward ratio is at its worst. By the time something feels obvious, the market has already priced it in.

Why You’re Better Off Waiting Until FOMO Fades

FOMO doesn’t always look the same. Sometimes it’s chasing a hot IPO. Sometimes it’s piling into a sector after a huge run, convinced the momentum will continue. Other times, it’s buying after a sharp price surge or making a large bet on whatever theme dominates the headlines.

What these situations share is the same underlying dynamic: the decision is driven by what the market has already done, not by a thoughtful assessment of what it might do next. You’re reacting to the past and mistaking it for a signal about the future.

High-profile IPOs are a particularly common FOMO trap because the excitement is so visible and the story so compelling. When a company goes public, institutional investors such as venture capital firms, private equity funds, and asset managers are often the only investors positioned to benefit from the initial price “pop.” By the time most retail investors can buy shares, much of that gain has already been captured.

In fact, investors fortunate enough to buy at the offer price have historically enjoyed substantial first-day gains, often averaging 15% to 22%. Yet for the typical retail investor buying at the market open, first-day returns have averaged just 1.3%.

Research also shows that IPOs frequently underperform the broader market, such as the S&P 500, over the following two-and-a-half to three years as early enthusiasm fades. In other words, you’re often better off waiting until the opportunity feels far less exciting.

Questions Worth Asking When You Feel the Pull of FOMO

If you’re experiencing FOMO, there’s a good chance emotion is driving the decision. Before investing, take a step back and ask yourself a few important questions:

  • Why do I want to buy this? Is it based on research, or because everyone is talking about it?
  • Does this fit my financial goals and timeline, or am I straying from my plan?
  • Does the current valuation leave room for meaningful future returns?
  • How much of my portfolio would this represent, and am I comfortable with that level of risk?
  • What’s my plan if the investment falls 30% in the first year?

These aren’t complicated questions, but they can help reveal whether you’re making a thoughtful decision or reacting to excitement. And if it feels like you don’t have time to ask them, that’s often the clearest sign that you should pause before acting.

A Long-Term Perspective Changes Everything

The most successful long-term investors understand that they don’t need to catch every opportunity. They simply need to avoid the mistakes that can set them back.

Missing an exciting IPO or a hot sector run is rarely as costly as it feels in the moment. What undermines long-term wealth building is taking on too much risk at the wrong time, selling in a panic during downturns, and allowing short-term noise to derail a disciplined strategy.

If you find yourself caught up in the excitement around a particular investment, slow down. Revisit your financial plan. Talk with a trusted advisor. Ask yourself whether you’d still be interested if nobody else was talking about it.

The best opportunities aren’t necessarily the ones that feel most urgent. They’re the ones that fit your goals, your timeline, and your portfolio, regardless of what’s making headlines.

Explore our free resources for helpful tips, tools, and educational content to support your financial journey.

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Emotional Investing: Mastering Your Mindset in Turbulent Times

Investment Management, Simple Truths About Money, Women and Money / /
Emotional Investing

When markets are volatile—as they have been recently—it’s easy to let emotions take the wheel. Fear, uncertainty, and the urge to “do something” can quickly override even the most carefully laid plans and lead to emotional investing.

This isn’t a sign of inexperience; even seasoned investors fall into the trap of reacting emotionally when the headlines feel overwhelming. The truth is, we’re wired to seek control in uncertain situations, and that often means making moves that feel productive in the moment but hurt us in the long run.

Fortunately, when we understand the emotional biases behind our decisions and put thoughtful systems in place, we can create a buffer between our instincts and our actions—making it easier to stay grounded and focused, even in turbulent times.

Why We Make Emotional Investment Decisions

Our brains weren’t designed for long-term investing—they were designed for short-term survival. From an evolutionary perspective, when we sense danger, it’s our limbic system—the emotional center of the brain—that takes over. This system is responsible for quick, instinctive reactions like fight or flight.

In moments of market turmoil, it can easily overpower the more rational prefrontal cortex, which governs logic and long-term planning. The result is a tug-of-war between emotion and reason, often leading to cognitive biases that derail sound decision-making.

Common examples of these biases include:

  • Loss aversion makes the pain of losing feel twice as intense as the pleasure of an equivalent gain, according to Nobel laureates Daniel Kahneman and Amos Tversky—prompting rash decisions to avoid further loss.
  • Recency bias causes us to fixate on the latest downturn, assuming it will continue.
  • Confirmation bias leads us to favor headlines that reinforce our fears.
  • Herd mentality drives us to follow the crowd, even when the data says otherwise.

Recognizing these patterns is the first step toward developing a more disciplined, resilient investment strategy.

The Cost of Emotional Investing

Different market environments can stir up different emotional traps—each one capable of leading investors off course.

In bull markets, rising prices and media buzz often fuel FOMO (fear of missing out), pushing investors to chase hot stocks or take on too much risk. Overconfidence can creep in, too, leading many to forget that markets don’t rise forever. We’ve seen this pattern before: during the tech boom of the late ’90s, the housing bubble before 2007, and more recently, with the surge in bitcoin.

In bear markets, it’s the opposite. Fear and uncertainty take hold. Panic selling becomes common as investors try to “cut their losses,” often locking in declines that might have been temporary. The 2008 financial crisis was a clear example of how emotions can drive poor decisions.

The impact of these choices is real. According to Dalbar, from 1994 to 2023, the average equity investor earned an annualized return of 8.01%, while the S&P 500 returned 10.15%—a gap largely explained by mistimed buying and selling.

Morningstar also found that over the 10 years ending December 31, 2023, the average fund investor underperformed their actual investments by 1.1% per year. Put simply: it’s not just what you invest in that matters—it’s how you behave.

Staying disciplined and keeping emotions in check isn’t always easy, but it’s one of the most important things you can do to stay on track toward your long-term goals.

Practical Strategies to Avoid Emotional Investing

Emotions are a natural part of investing, but they don’t have to drive your decisions. With the right systems in place, you can reduce emotional interference and stay aligned with your long-term goals.

Here are four strategies that can help you stay the course when your emotions take hold:

#1: Create a Detailed Investment Policy Statement (IPS)

Before putting any money to work, it’s important to build a written plan that clearly defines your goals, risk tolerance, target asset allocation, and the circumstances under which you might make changes. This kind of structure—often called an Investment Policy Statement (IPS)—acts as your financial compass, keeping you grounded when markets become unpredictable.

Instead of reacting to headlines or short-term swings, you can revisit your IPS to stay focused on the strategy you thoughtfully set in place.

#2: Automate Contributions and Rebalancing

The fewer decisions you need to make, the better. Automating your monthly contributions takes the guesswork out of when to invest and builds consistency across all market environments.

In addition to setting up automatic deposits into your retirement accounts, consider directing fixed amounts to your emergency fund and other investment accounts. This kind of automation keeps your financial plan in motion—even on the days when your emotions might try to pull you off course.

#3: Lean Into Dollar-Cost Averaging (Especially in Volatile Markets)

Dollar-cost averaging—consistently investing a fixed amount at regular intervals—can help take the emotion out of investing by shifting your focus from short-term market swings to long-term growth. It’s especially effective during periods of volatility, when the urge to pause or make impulsive moves can be strongest.

A recent study from Vanguard found that this strategy not only helps reduce the risk of mistiming the market, but often leads to a lower average cost per share over time.

#4: Work With a Financial Advisor as an Emotional Buffer

Sometimes, the smartest investment move is choosing not to act—and that’s where a trusted advisor can make all the difference. A skilled financial advisor serves as a steady buffer between your emotions and your money, guiding decisions based on strategy and data rather than fear or impulse.

We provide perspective during turbulent times, help you stay aligned with your long-term goals, and offer the accountability and clarity you might need to navigate uncertainty with confidence.

Manage Your Emotions and Invest with Confidence

Emotional investing is one of the most common—and costly—mistakes investors make. But with the right strategies in place, it becomes easier to block out short-term noise and stay committed to your long-term goals.

Remember, mastering your mindset isn’t a one-time event—it’s a lifelong practice that deepens with experience. Having the support of a trusted financial advisor can make that journey more intentional, especially during periods of uncertainty.

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Navigating Uncertainty: October Market Review and Outlook

Investment Management, News, Simple Truths About Money, Women and Money / /
October Market Review

In this October market review and outlook, we provide a summary of recent events in the economy and financial markets and offer insights into what this may mean for investors moving forward.

For the last year, forecasters have been predicting an economic downturn in the United States as the Federal Reserve (Fed) strives to control inflation by raising interest rates. Historically, the Fed has had difficulty achieving an economic “soft landing”—that is, taming inflation without causing a damaging recession—when raising rates.

However, more than a year into the Fed’s rate hike cycle, the U.S. economy remains resilient. In fact, the first estimate of third-quarter GDP growth came in at an annual rate of 4.9%, its fastest pace since 2021.

Meanwhile, financial markets have taken a hit in recent months. Both the S&P 500 and Nasdaq dropped more than 10% from their July highs in October, placing both indexes in correction territory. The bond market has also struggled recently as interest rates climb higher.

As we near year-end, many investors are concerned about what a potential recession and ongoing market volatility may mean for their money. Here’s a recap of what’s happened lately and what that may mean for investors heading into 2024.

The Economy Remains Resilient

Since March 2022, the Fed has hiked interest rates 11 times, raising the federal funds rate from near-zero to a target range of 5.25% to 5.5%. However, the Fed has held rates steady since July 2023 in light of moderating inflation and a remarkably resilient labor market.

According to the latest reading of the personal consumption expenditures price index, the Fed’s preferred measure of inflation, core inflation is now 3.7% year over year. While this is significantly lower than its peak reading in June 2022, it’s still a far cry from the Fed’s 2% annual target.

Meanwhile, the unemployment rate continues to hold steady at 3.8%, and third-quarter wages and benefits grew 4.3% year over year. Due in part to ongoing labor market strength, consumer spending increased by 4% in the third quarter, propelling GDP to an annual rate of 4.9%.

October Market Review: Financial Markets Continue to Struggle

Despite strong economic performance, the U.S. stock market continued its decline in October, marking three straight months of negative returns. A variety of factors are in part responsible for the recent pullback in performance, including:

  • Soaring Treasury yields. The yield on the 10-year Treasury note approached 5% in October, the highest level since 2007, curbing investors’ appetite for risk and creating headwinds for big tech and other high-growth companies.
  • Tax-loss harvesting. The recent pullback prior to October created more opportunities for tax-loss harvesting, which put additional pressure on the market in October as investors sold underperforming stocks to offset gains. On the bright side, research from Bank of America shows that although tax-advantaged selling typically pressures stocks at year-end, it often sets the stage for a strong rebound in January when traders repurchase.
  • Higher-than-expected GDP growth. Third-quarter GDP grew at a surprising 4.9% annualized rate, quashing hopes that the Fed will lower interest rates in the near term.
  • Ongoing geopolitical tensions. Russia’s war in Ukraine and the Hamas-Israel conflict continue to add to market uncertainty.

The bond market has also seen weakness as interest rates continue their ascent (in general, bond prices fall as interest rates rise, and vice versa). Both 10-year and 30-year Treasury yields increased more than 0.3% in October, causing longer-term bonds to underperform.

Looking Ahead: Underlying Economic Concerns

Although the U.S. economy continues to hum along, concerns of a potential downturn persist. Some of the factors that could contribute to an economic slowdown include:

  • Declining real disposable income and household savings. Personal income adjusted for taxes and inflation fell 1% in the third quarter after rising 3.5% in the second quarter. Furthermore, personal savings as a percentage of real disposable income fell from 5.2% in the second quarter to 3.8% in the third quarter. As consumers eat through their savings, they may not be able to spend at the same rate going forward.
  • Rising long-term interest rates. Long-term interest rates recently saw their highest levels since 2007. For example, 10-year Treasury yields briefly passed 5% in October, while 30-year yields traded north of 5% for most of the month. Higher rates may be problematic for consumer spending and business investment, as well as several business sectors including the housing market.
  • Tighter credit markets. According to a recent survey from the National Federation of Independent Business, more small businesses reported difficulty accessing credit in September compared to the previous month. The inability to secure capital could lead to a pullback in business investment and hiring.

If these concerns come to fruition, financial markets and the economy might falter accordingly. On the other hand, an economic slowdown could alleviate the need for further Fed intervention, paving the way for future interest rate cuts.

What This Means for Investors

Although recent GDP data is encouraging, these growth rates may not be sustainable as underlying economic concerns create pressure for consumers and businesses alike. While a full-blown recession may not be imminent, many economists expect the economy to cool in the coming months.

Meanwhile, the Fed will decide whether future rate hikes are necessary as new data becomes available. Despite holding rates steady since July, another increase is possible before year-end.

For investors, this lack of clarity may mean heightened market volatility in the near term. At the same time, November is historically the best month for the S&P 500. Indeed, strong performance from U.S. equities could help offset recent losses.

Ultimately, we don’t know what the future holds. However, we do know that patience tends to reward long-term investors. Those who maintain a diversified portfolio and stick to their investment plan typically fare better than those who attempt to time the market.

In the meantime, I encourage you to focus on what’s controllable—for instance, your spending habits, savings rates, and investment decisions—and avoid knee-jerk reactions to negative headlines.

If you found this October market review and outlook helpful, head over to our free resources page for more financial planning tips and guidance.

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