What is FOMO?
FOMO is an anxiety that you are foregoing a rewarding experience or event while others are in on the action. It takes many forms, such as social (you want to stay home tonight, but feel like you should go to that party where everyone will be networking), or material (you want to buy a modest vehicle but are tempted by all the luxury cars on the road).
But one of the most harmful forms of FOMO is related to personal finance.
Financial FOMO
The CFA Institute found that half of Gen Z investors in the United States have made FOMO-driven investments, largely in cryptocurrencies and individual stocks, including meme stocks that have received viral attention online. A survey by Canada's British Columbia Securities Commission found half of B.C. residents between 18 and 34 suffer from FOMO, compared to just 19% of those over 55.
FOMO stems from a tendency to compare ourselves with others. When clients hear about others succeeding financially, they can feel inadequate. This puts them in danger as they make rash, uninformed decisions in an attempt to keep up.
Social media compounds the FOMO threat. Researchers have found that while social media can have a positive effect on mental health, it can also lead users to compare themselves more with others, affecting their mental well-being. The spread of inflated or outright fraudulent investment claims on social media, especially when endorsed by trusted individuals such as celebrities, is a common source of FOMO. Over two-thirds of investors under 35 trust social media almost as much as the news, making it a dangerous place for emotional investors.
Celebrity endorsements are such a problem that the SEC even warned about them in 2017. As a financial professional, your job goes beyond providing a service by helping clients deal with their stress and other emotions around their finances. There are strategies that you can use to counter FOMO and help clients find balance.
Teach them to take a breath
Financial FOMO is dangerous because it's often seen as time-critical. Sufferers worry that unless they invest now, prices will change and they'll miss the boat. This encourages them to act without thinking. Encourage them to be mindful, promising to sleep on an opportunity and ideally checking in with you before taking the plunge.
Help them identify their triggers
Most people have triggers around money. For some, it's a fear of not being able to retire in style. For others, it's anxiety over past opportunities that they feel they should have taken, and a commitment not to repeat the mistake. If they know what drives rash decisions, they'll be less inclined to fall victim to those triggers. As an advisor, you have an opportunity to surface these issues with your client through conversation.Remind them of the downside
Every investment opportunity comes with risks. Some esoteric, hyped assets are more volatile, inviting sharper losses. Their proponents focus only on the upside. Remind your clients of the potential risks, and ask if they're prepared to accept them.
Encourage an abundance mindset
This is perhaps one of the biggest talking points for financial professionals. There are plenty of opportunities for investors, and an individual need not feel jealous of a friend or colleague's financial success. Help clients to focus on their own financial goals rather than fretting at others' recent wins.
Remind them of long-term goals and opportunities
Financial goals are usually best achieved through steady, long-term commitments instead of taking chances on risky assets or market timing.
A long-term analysis is especially relevant for younger investors that are most susceptible to FOMO. Remind them of the long-term financial aspirations that they outlined with you, and the potential that steady long-term returns offer in achieving those goals.
Facts fight FOMO
FOMO should not form your clients' financial future. These strategies aim to accomplish the same goal: bringing clients back to the facts and helping them refocus on their long-term financial goals.
Learn more about how to help your clients avoid making emotional decisions.
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