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The danger of ‘FOMO’ investing

FOMO, the ‘fear of missing out’, is the anxiety you feel that you might be neglecting something exciting elsewhere. It can lead to irrational decisions, they might even be regrettable. It’s arguable that social media fuels FOMO; from Facebook and a missed dinner party, to LinkedIn showcasing the best bits of an ex-colleagues’ career. But, these select highlights can be misleading and cause dissatisfaction with your own decisions. So, what happens when FOMO creeps into your financial plan?

Driven by volatility?

Since the financial crisis of 2008, we’ve experienced a ten-year bull market, with steady growth and healthy returns. Towards the end of 2018, we began to experience volatility, with October the most turbulent month in a decade.

When markets are volatile it’s easy to feel uncertainty. But, if you already have a financial plan in place, try not to second guess your decisions. By all means, review your plan regularly to ensure it remains relevant and on track to meet your aspirations, that’s very important. But, whilst there is volatility and doubt, there are always people trying to capitalise on FOMO.

‘Beat the market’

Proceed with caution if a company is promoting a product based on the return they intend to achieve. No matter what their website says, there is no such thing as a legitimate risk-free 9.9% ‘fixed return’ ISA.

There isn’t a way to beat the market, if it sounds too good to be true, it is. Once you get into the literature of these investments they are often based on property or forestry. They will be very volatile, risky and the returns advertised wildly unrealistic. Investment risk warnings and certificates on promotional material might make them appear more trustworthy, but don’t be fooled.

Naturally, you want your investments to grow, but to achieve higher returns, higher risk has to be taken. Figures from the Financial Conduct Authority show people are being drawn into investment scams in the hope of achieving exceptional returns. In fact, last year investment scams cost their victims £197 million in losses. Unfortunately, people lost £29,000 on average each.

Fraudsters are increasingly using sophisticated tactics to prey on FOMO and encourage victims to invest. Now the cold calling ban has come into force, they are taking advantage of digital technology and shifting their focus online. Of the people that checked the FCA Warning List following suspicious contact, 54% had been targeted via online sources, like social media and by email.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said: “The first quarter is a common time for people to make their financial plans for the year, including investments. But before you invest do your homework. Always check the FCA’s register to make sure you’re dealing with an authorised firm and use the contact details on our register, not the details the firm gives you, to avoid ‘clones’. Also, check the FCA Warning List of firms to avoid. Remember, if in any doubt, don’t invest!”

Stick to your guns

If FOMO starts creeping into your financial plan, remember why you invested in the first place. It’s likely to be long term, such as for retirement, and short-term volatility and distractions might only de-rail that plan.

Financial planning is as much about managing investment risk, as managing emotions and mitigating irrational behaviour. We are here to explain volatility and market fluctuations and help secure your financial future; we aren’t able to promise high returns and you should be very cautious of anyone who says they can. Ultimately, ignoring FOMO and sticking to your guns through thick and thin is the best way to achieve financial independence.

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