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Published by: Jeff Hall, CFP®,CIMA® Date: September 06, 2019

An exotic vacation destination.  The perfect sunset on the beach.  An elegant dinner at that hot new restaurant.  Selfies from the front row of the last big concert.  Everyone sees these type of images on their social media feeds from friends, family, and acquaintances, and we hope these striking images don’t invite FOMO into our hearts.   FOMO, or the fear of missing out, refers to the feeling or perception that others are having more fun, living better lives, or experiencing better things than you are. It may involve a deep sense of envy and can affect our self-esteem.  Recent research from Charles Schwab reveals that three in five Americans pay more attention to how their friends spend money than how they save.  An equal number say they’re at a loss to understand how their friends are able to afford the lifestyles they portray on social media.

At a personal level, someone else’s social media driven lifestyle may foster some level of animosity, but the fear of missing out can create widespread disaster when the stakes are higher. For example:

In the mid-late 1990’s, a hedge fund named Long Term Capital Management became the hot investment on Wall Street. One by one, every major investment bank and brokerage house began tripping over themselves to fund the investment so they wouldn’t lose assets to competitors.  At the eleventh hour, the Federal Reserve forced all the parties involved to coordinate a plan to keep themselves from going bankrupt.  Sound familiar?

Around the same time, the technology stock boom was forcing every major investment management company to create a technology fund or portfolio because the “new economy” had arrived, and no one wanted to miss the boat. Tech stocks proceeded to lose over 70% of their market value during the subsequent 2 years.

FOMO has real consequences.

Though FOMO may seem like a recently created acronym, the term has actually been around since 2003 when Patrick McGinnnis, a student at Harvard Business School coined the phrase. What’s interesting is that McGinnis also came up with the less-used term, FOBO or the “fear of better options.”

IF FOMO is about envy, then FOBO is about fear.  Over my 20 year professional career , I’ve heard many examples of FOBO as it relates to investing, some include:

  • “I’m not investing until we have a new president.”
  • “This market is at all-time highs. I’m going to wait this out.”
  • “Interest rates are going to the sky. I don’t want to lose money on bonds.”
  • “The Federal Reserve is printing all this money. I’m going to own gold.”

What people are really saying is diversification, dollar cost averaging and thoughtful rebalancing just aren’t good enough.

I believe FOMO (envy) and FOBO (fear) together can wreak greater havoc on a family’s finances than any recession or bear-market because it lets emotion dictate the decision-making process. One of the ways we can mitigate FOMO and FOBO  is to understand when not to make a major financial decision.

  • Because of political cycles. If the US was a third-world country, this might hold some water, but we’re not.
  • Because someone else made a truckload of money doing something unconventional.
  • Because you think 5% – 7% returns can come with preservation of capital (at least in this environment). This is how Ponzi schemes begin.
  • During a highly emotional experience. Starting a new job or business, welcoming a child into the world or losing a close family member, especially a spouse.
  • While buying a home. Our homes are one of the largest if not the largest asset on our balance sheet, not to mention the most expensive to maintain. It stands to reason that the process requires thoughtfulness.
  • Because someone else moved into a new neighborhood (bought a new house, a boat, a pool, a Porsche, went on a dream vacation, etc.)

Outside factors influence our personal financial habits more than we probably want to admit. However, self-awareness can be one of the greatest qualities to protect us from missteps whether due to envy or fear.