Episode 110: FOMO and Investing
In this episode we discuss the dangers of emotional investing due to Fear of Missing Out
Transcript
Hello and welcome to the balanced wealth podcast. My name is Gavin DiStasi and today we’re going to be talking about FOMO, or fear of missing out. More specifically, how FOMO affects investors, why it can lead to poor financial decisions, and how understanding this behavior may help investors make more rational long-term choices.
Most investors have experienced it at some point, whether they even realize it or not. It’s that uncomfortable feeling – that everyone else seems to be making money while you’re standing still. It’s the anxiety that maybe you’re being left behind. And in today’s world of social media, 24-hour financial news, online trading platforms, and viral investing stories, that feeling has become stronger than ever.
Let’s start with a simple truth about investing: nobody likes feeling left out.
Human beings are social creatures. We naturally compare ourselves to others. Historically, this instinct probably served an evolutionary purpose. Being part of the group improved survival. But in investing, that same instinct can become incredibly destructive.
When investors see other people making large amounts of money quickly, especially in speculative investments, it creates emotional pressure. Suddenly, caution feels foolish. Patience feels outdated. Long-term <a href=”https://td-wm.com/services/financial-planning/”>financial planning</a> feels boring.
And this pressure becomes especially powerful during speculative manias.
We’ve seen it repeatedly throughout financial history. The dot-com bubble in the late 90s. The housing boom before the great recession. Meme stocks. Cryptocurrency surges. Artificial intelligence stock frenzies. Every generation experiences some version of the same story.
At first, a new investment trend may have legitimate fundamentals behind it. But eventually, excitement begins feeding on itself. Prices rise rapidly. Media coverage intensifies. Success stories dominate headlines and social media feeds. And people begin investing not because they understand the opportunity, but because they fear missing out on potential gains.
That distinction matters enormously.
Investing based on research, planning, and long-term objectives is very different from investing emotionally because everyone else appears to be getting rich.
And the emotional side of FOMO is amplified dramatically by modern technology.
Years ago, investors may have occasionally heard about someone making money in the market. Today, they are bombarded with it constantly. Social media platforms create an environment where people showcase wins while hiding losses. You see screenshots of massive gains, stories of overnight wealth, and endless commentary about the “next big thing.”
What you usually don’t see are the mistakes, the losses, the leverage, the panic, or the people who bought near the top and lost substantial amounts of money afterward.
This creates a distorted perception of reality.
It begins to feel like everyone is succeeding except you.
And that perception can cause investors to abandon discipline entirely.
One of the most common patterns during speculative periods is that investors begin taking on risks they normally never would. They buy investments they do not fully understand. They ignore diversification. They concentrate too much money into one idea. Sometimes they even borrow money to invest, because they become convinced that missing the opportunity would be worse than the risk itself.
Behaviorally, this tracks with herd mentality and recency bias.
Recency bias is our tendency to believe recent trends will continue indefinitely. If an investment has been rising sharply for months or years, people begin assuming it will simply keep going higher. Investors mentally extrapolate recent success into the future.
Meanwhile, herd behavior reinforces the emotional comfort of following the crowd. There’s psychological safety in doing what everyone else is doing. If “everybody” is investing in something, it feels less risky emotionally — even if, objectively it may be far riskier financially.
Ironically, the periods when investors feel the most comfortable emotionally are often the periods when risk is actually highest.
That’s because speculative bubbles tend to create a false sense of certainty.
People stop asking hard questions. Valuations stop mattering. Risk management gets ignored. The narrative becomes dominant: “It’s Different This Time.”
But history shows us repeatedly that markets and investments do not move upward indefinitely without interruption.
Eventually, enthusiasm cools. Reality catches up. Expectations become impossible to meet. And when momentum reverses, it often reverses quickly.
This is where the emotional cycle flips.
The same investors who bought because of FOMO often sell because of fear. The excitement that drove prices upward becomes panic on the way down. Investors who chased returns late in the cycle frequently end up locking in losses because they entered without a disciplined plan in the first place.
This emotional whipsaw is one of the greatest destroyers of long-term investment returns.
In many cases, the problem is not that investors choose bad investments entirely. The problem is often behavioral timing. They become interested only after enormous gains have already occurred, when enthusiasm is highest and valuations are most stretched. Buy high, sell low.
In other words, people often become most excited precisely when caution may be most appropriate.
This is one reason disciplined investing can feel emotionally uncomfortable at times.
Prudent long-term <a href=”https://td-wm.com/services/investment-management/”>investment management</a> may appear boring during speculative manias. Diversification can feel frustrating when one narrow area of the market is dramatically outperforming everything else. Investors begin asking themselves, “Why don’t I own more of that?”
But diversification and discipline are designed specifically to protect investors from becoming overly exposed to temporary market enthusiasm.
It’s important to remember that successful long-term investing is usually not about finding the hottest investment at exactly the right moment. More often, it’s about consistency, patience, risk management, and avoiding catastrophic mistakes.
And perhaps most importantly, understanding that markets are cyclical.
Today’s “can’t miss” investment often looks very different a few years later.
This does not mean investors should avoid innovation or new opportunities entirely. Some transformative technologies and industries absolutely do create enormous long-term value. But there’s a difference between thoughtful investing and emotionally driven speculation.
The key question investors should ask themselves is this: “Am I making this decision because it fits my long-term <a href=”https://td-wm.com/services/financial-planning/”>financial plan</a>, or because I’m afraid other people are making money without me?”
That question alone can often reveal whether emotion is driving the decision.
One of the healthiest ways to combat FOMO is to reframe how we think about investing success altogether.
Investing is not a competition against strangers on the internet. It is not about maximizing excitement. It is not about getting rich overnight.
The real purpose of investing is to help support long-term financial goals: <a href=”https://td-wm.com/services/financial-planning/#retirement-planning”>retirement</a>, financial independence, supporting family, charitable giving, or creating peace of mind.
And achieving those goals rarely requires chasing speculative trends.
In fact, many of the most successful investors in history built wealth slowly, steadily, and yes, boringly, over time through discipline, diversification, and patience.
That may not generate viral social media posts, but it is often far more effective.
At the end of the day, FOMO is fundamentally emotional. It plays on comparison, insecurity, greed, and fear of being left behind. But markets will always produce periods of excitement and speculation. There will always be another “hot” investment story.
The challenge for investors is learning to separate emotional impulses from rational decision-making.
Because in investing, avoiding emotionally driven mistakes is often more important than finding good opportunities.
And sometimes, the most financially rewarding decision is simply having the discipline not to follow the crowd.
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