Have you ever logged on to social media and been inundated with images of family and friends having what appears to be way more fun than you are?
Have you ever found yourself checking your social accounts a little more often than you should, just to make sure you’re not missing out on some of that excitement?
Sound familiar? In these days of hyper connectivity, it’s quite common for people to be plagued by FOMO – the fear of missing out.
But it’s not just potential social opportunities that can induce this state of anxiety. FOMO can also be a fear of regret or missed opportunity – a fact I’ve been reminded of this summer with the continued rise of Bitcoin and other cryptocurrencies.
The price of a single Bitcoin rose from around $1,000 USD to just under $15,000 USD in 2017 – an increase of more than 1,400%.
Where it goes to from here is anyone’s guess, but regardless of its future performance, for some investors the feeling of FOMO is rising with each new story about the latest cryptocurrency millionaire.
The principles of building a sound investment portfolio include setting goals (clear, concise, appropriate), finding balance (broad diversification to assist with managing volatility and risk), and exercising discipline (maintaining a long-term perspective).
But regret is a powerful emotion, and because we fear regret we can be motivated to take action – making emotional decisions instead of rational ones.
Psychological studies have shown that losses (or feelings of loss, such as regret) are felt twice as strongly as gains. This theory is known as “loss aversion” and was first identified by psychologists Daniel Kahneman and Amos Taversky.
As investors (and human beings) we need to be able to live with our decisions and sleep soundly at night. Doing nothing may be the rational decision, but knowing that and not acting is easier said than done.
As I’ve previously written, Bitcoin has no intrinsic value and generates no income, with its price seemingly driven by investors speculating that the price will continue to increase.
But if your FOMO is becoming impossible to ignore and you feel compelled to scratch your cryptocurrency itch, make sure you set some parameters around your decision:
- Put a cap on your investment. I suggest no more than 5% of your portfolio should be allocated to speculative investments like Bitcoin. Don’t blow up your financial future on the back of an emotional whim. Famed investor Warren Buffett was recently quoted as saying that cryptocurrencies like Bitcoin “will come to a bad ending”, so you need to be prepared to lose the lot.
- Check the fine print. Fees can vary greatly between cryptocurrency exchanges – some charge a flat fee, others charge a percentage of each transaction – while there may also be minimum investment limits on your account. It’s also been reported that some investors have had problems cashing in their investment, with banks freezing accounts and transfer to and from cryptocurrency exchanges. Make sure you know what you’re getting into before you give it the green light.
- Have an exit plan. Cryptocurrencies have had spectacular gains, but nothing last forever. Markets will always rise and fall – it is important to have a plan around when to sell so you’re not making decisions on the run.
Fear in itself isn’t necessarily a bad thing. It’s a natural instinct that has helped keep humans alive for thousands of years (think fight or flight).
But while it is understandable to feel anxious at the thought of missing out on something, make sure your head always stays in control of your heart (or in this case, those butterflies in your stomach) when making investment decisions.
After all, you don’t want to act on your FOMO, only to have it end up as one big ‘Oh no’…
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