How to Avoid the Investing FOMO Trap

A 2021 study by the Financial Markets Authority of New Zealand revealed that 31% of DIY investors who invest online plunged into an investment just because they didn’t want to miss out. The FOMO is real! Emma from The Broke Generation explores why the fear of missing out drives some to take on risky investments, and how to avoid giving into the FOMO.

What was once a secret club for the ultra-wealthy, investing has become the hot topic of conversation among just about everyone. More of us are investing than ever before, and participation in the wealth creation conversation now extends well beyond your average white bloke in a suit. We simply love to see it. But as investing has had an almighty glow up, its growing accessibility can carry dangerous consequences, as unqualified and often shady traders tout bad investments. 

What is FOMO investing?

FOMO stands for fear of missing out, and that’s exactly what’s happening with investing. Everyone is talking about it, and many have taken to social media to gush about big returns in a way that’s reminiscent of the get-rich-quick schemes of the 80s and 90s. FOMO investing happens when people make ill-informed investment decisions based on a fear of missing out on a good thing, or fear of missing the boat on a ‘sure thing’ investment. 

What are the risks of FOMO investing?

The issue with FOMO investing is that people can wind up making extremely risky investments without even realizing it, costing them financial security and resources that are vital to their livelihoods. 

Risks are heightened in the day trading and cryptocurrency spaces, where extremely short-term investments are bought and sold. These types of investments move very fast and are extremely high risk. Make a mistake and you could lose your money very quickly.

Dangers of DIY investing

Often short-term investors with no financial credentials flood social media feeds with big promises of high returns in days or even hours, convincing vulnerable people to buy in. Even outside of cryptocurrency, the recent Gamestop scandal involved the artificial inflation of the value of a stock called Gamestop. Many bought in as the stock’s price soared, despite being uninformed about the validity of the investment. 

How to invest safely

What’s important to remember is that all investing carries some level of risk — but not all risk is equal. Someone on social media shouting about making a quick buck on a stock you’ve never heard of isn’t the same level of risk as investing in diversified funds with a view to hold those investments over the long term. 

Build up your emergency fund

It’s critical that before you invest, you first make sure you’re only investing money you can reasonably live without for a long period of time. Expecting to make quick money with your investments opens you up to much bigger risks. Instead, look long term. Ensure you’ve got your emergency savings fully funded, and only invest what you don’t need right now. 

Research and due diligence

Do your due diligence on anyone you’ve taken information or advice from. Just because they have a following on social media doesn’t mean their information is accurate. 

Then, research what it is you’re investing in, and think about what your strategy is. How has this investment’s value changed over time? Why are you buying it? What makes it a good investment? 

If you can’t answer these questions, keep researching and learning before you hand over your money. Alternatively, seek qualified advice from a financial advisor. 

Use brokerages you can trust

If and when you do make your first investment, ensure you’re buying safely with a brokerage platform you can trust or an investing app for beginners, rather than through social media DMs or links. If something feels off, trust your gut. Scammers often replicate public figure profiles in order to attract vulnerable fans and followers. Remember, your favorite influencers won’t ask you for money over social media. Report accounts that appear fraudulent and avoid clicking links they may have sent you.

Important: Never transfer money to someone claiming to be an investing expert on social media. If you believe you’ve been scammed, you can report scams to the ScamWatch by the ACCC in Australia, NetSafe in New Zealand, or Citizens Advice in the UK.


Emma Edwards Profile Image

Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients. 

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