Your neighbor just told you about a stock that doubled in six months. Your college roommate posted screenshots of cryptocurrency gains on social media. A coworker keeps talking about the AI companies they’re loading up on. Every conversation, every scroll through your phone, every financial headline seems to scream that everyone else is making money while you’re sitting on the sidelines.
This anxiety has a name: the fear of missing out, or FOMO. In financial markets, FOMO drives investors to abandon carefully constructed plans and chase whatever’s hot at the moment. Research shows this behavior costs investors dearly. According to DALBAR’s analysis, from 2003 to 2022, the average equity fund investor earned 6.81% annually while the S&P 500 returned 9.65% over the same period. That gap exists largely because of poor timing, buying high, selling low, and chasing trends driven by emotion rather than strategy. Understanding the psychological forces behind FOMO and developing systems to counteract them separates successful long-term investors from those who constantly struggle.
The Psychology Behind Investment FOMO
FOMO stems from deeply rooted psychological patterns that behavioral finance researchers have studied for decades. The field examines how emotions, cognitive biases, and social influences affect investor decisions, often leading to outcomes that traditional financial theory can’t explain. When you see others profiting from an investment opportunity and worry you’re being left behind, your brain interprets this as a loss even though your own situation hasn’t changed.
Loss aversion plays a central role in FOMO-driven decisions. Research found that people are loss averse, and that the pain of missing out or losing money feels far more intense than the pleasure of equivalent gains. This asymmetry means that watching your friend triple their money in a speculative investment triggers stronger emotional responses than the satisfaction of your diversified portfolio steadily appreciating.
Social comparison intensifies these feelings. According to a study, investors tend to look to others for cues about how to behave, particularly during uncertain or volatile periods. This herd behavior creates momentum that pulls more investors into crowded trades. When everyone in your social circle discusses the same investment, the pressure to participate becomes nearly overwhelming, regardless of whether it fits your financial plan.
Recent research quantifies how pervasive FOMO has become. A May 2025 study introduced the Global FOMO Index, tracking Google searches for terms like “fear of missing out,” “FOMO,” “how to invest,” and “buy stocks.” The index revealed dramatic spikes in 2018 and 2021, coinciding with Bitcoin hitting $20,000 and $69,000, respectively, and reached a new peak in 2025 after Bitcoin surged past $100,000. These patterns demonstrate how speculative events amplify investor anxiety about being left out.
How FOMO Destroys Portfolio Returns
The mechanics of FOMO-driven investing create a predictable pattern of wealth destruction. When an investment has already experienced substantial gains, media coverage intensifies, social conversations multiply, and the sense of urgency builds. Investors who succumb to FOMO typically enter positions after most of the appreciation has occurred, buying at or near peak prices.
The cryptocurrency and meme stock frenzies provide clear examples. Think of the GameStop stock frenzy, Bitcoin’s meteoric rises, or any market bubble where investors pile in, afraid of missing the next big thing: those who bought near the top watched their positions crater when momentum reversed. A behavioral finance expert notes that with highly volatile assets, you could be in a meeting at work and your position could drop 40% in less than 30 minutes.
FOMO also leads to portfolio concentration risk. When investors chase a hot sector or individual stock, they often allocate disproportionate amounts to these positions relative to their total portfolio. This concentration magnifies losses when the trend reverses. The investor who puts substantial funds into a speculative position faces not just the loss on that investment, but the opportunity cost of not having those funds in a diversified portfolio.
The pattern extends beyond individual stock picking. During the late 1990s dot-com bubble, investors piled into unprofitable internet companies simply because they were popular. When the bubble burst, the Nasdaq fell nearly 80%, devastating portfolios concentrated in technology stocks. Similar dynamics played out in the 2003 fiber-optic network crash and various real estate bubbles throughout history.
Distinguishing Investment from Speculation
A critical defense against FOMO involves clearly understanding the difference between investing and speculating. Investing means owning something because it has intrinsic value, cash flow, earnings, dividends, or real-world utility. Speculating involves buying something because you think someone else will pay more for it later, regardless of its fundamental value.
When FOMO strikes, and you feel compelled to buy an asset, ask yourself a fundamental question: Am I buying this because it’s in the news and rising rapidly, or because it’s a quality business or asset that aligns with my risk profile and goals? This distinction clarifies whether you’re making an investment decision or simply gambling on continued momentum.
The challenge intensifies with assets that have little fundamental value to analyze. With many cryptocurrencies and speculative tokens, average investors struggle to identify reasons for ownership beyond the hope of appreciation. When your entire thesis rests on “the price is going up,” you’re speculating rather than investing.
This doesn’t mean speculation is always wrong. Some investors consciously allocate a small portion of their portfolio, perhaps single-digit percentages, to speculative positions. The key involves setting these boundaries before FOMO strikes, not in the heat of the moment when emotions run high. Deciding in advance that you’ll risk no more than 5% of your portfolio on speculative plays prevents catastrophic losses when those bets don’t work out.
Building Systems to Counter Emotional Investing
Relying on willpower to resist FOMO consistently fails. Emotions are powerful, and in moments of market excitement or fear, rational thinking often disappears. The solution involves creating systems and processes that guide decisions even when emotions are running high.
An effective measure for resisting FOMO involves time. Research suggests that large investment decisions should be made with low time pressure, meaning ample time exists to make the decision. When you feel urgency to act immediately on an investment opportunity, that urgency itself should trigger suspicion. Legitimate investment opportunities rarely disappear overnight.
The physical environment where you make decisions matters. Research indicates that removing yourself from the environment where the scarcity-influenced decision is taking place helps create objectivity. If you’re scrolling social media, seeing everyone discuss a hot investment, put the phone down and step away. The temporal and physical gap between the stimulus and your response creates space for rational evaluation.
Talking through potential investments with a trusted partner before acting provides another powerful check on emotional decisions. Whether a friend, family member, or financial advisor, sometimes just articulating your reasoning helps you hear how emotional rather than logical it sounds. The person who explains “I want to buy this because everyone else is making money and I don’t want to be left out” often recognizes the weakness in that rationale when they hear themselves say it aloud.
The Value of Written Investment Policies
One of the most effective tools for combating FOMO involves creating a written investment policy before market excitement or panic sets in. This document outlines your financial goals, risk tolerance, asset allocation targets, and the specific criteria that must be met before making investment changes. When FOMO strikes, you can evaluate the tempting opportunity against your predetermined standards rather than making impulsive decisions.
Your investment policy statement should address several key elements. Define your time horizon for different goals; retirement might be 20 years away, while a home down payment could be needed in three years. Specify your target asset allocation and establish rebalancing triggers, such as acting when any asset class drifts more than 5% from its target allocation.
Include specific rules about speculative investments if you choose to make them at all. You might decide that no more than 5% of your portfolio can be allocated to individual stocks or cryptocurrencies, and no single position can exceed 2% of your total assets. These predetermined limits prevent FOMO from leading to concentrated bets that could devastate your financial plan if they don’t work out.
The discipline comes from the commitment to follow the policy even when, and especially when, you don’t want to. Are markets reaching new highs, and your policy calls for rebalancing some stock gains into other asset classes? The policy directs you to take that action despite feeling like you’re missing continued upside. Does a hot investment opportunity emerge, but doesn’t fit your policy criteria? You pass regardless of how many people are making money on it.
Learning from Market History
Market history provides countless examples of FOMO-driven bubbles followed by crashes. Studying these episodes helps investors recognize the warning signs when they appear again. While the specific investments change, such as tulips in the 1600s, dot-com stocks in the late 1990s, real estate in the mid-2000s, and cryptocurrencies in recent years, the psychological patterns remain remarkably consistent.
Each bubble features a compelling narrative about why “this time is different.” The internet really did transform business and society, just as the tulip bubble proponents claimed rare bulbs represented unique wealth. The narrative contains truth, making it psychologically easier to dismiss the bubble concerns. When someone warns that valuations have become disconnected from fundamentals, FOMO-influenced investors rationalize that the critics simply don’t understand the transformative nature of the new paradigm.
Rising prices create their own momentum through a reinforcing cycle. As more people crowd to certain investments, the price of the assets becomes overinflated. Even investors who recognize overvaluation often continue buying because their fear of doing something different from peers and potentially losing out outweighs their concern about fundamentals. This herding accelerates as prices rise, pulling in ever-greater numbers of participants until the bubble finally bursts.
The aftermath of these episodes consistently shows the same outcome: most participants lose money. The small group who got in early and exited before the peak profit substantially. The majority who entered late, driven by FOMO, suffer significant losses. Understanding this pattern intellectually doesn’t make resisting FOMO easy, but it provides context when you feel anxious about missing the next big thing.
Work With Us
The fear of missing out represents one of the most powerful forces working against your long-term financial success. FOMO drives investors to abandon sound strategies, concentrate portfolios in speculative positions, and buy high just before prices collapse. These behavior patterns – not fees, not poor investment options, but emotional decision-making – explain why the average investor significantly underperforms simple index strategies. The gap between what markets return and what investors actually earn comes down to psychology and behavior.
At Brogan Financial, we help clients develop investment strategies based on evidence and planning rather than emotion and market noise. We’ll work with you to create a written investment policy that reflects your actual goals and risk tolerance, then serve as your behavioral coach when FOMO tempts you to deviate from that plan. Our team understands that successful investing requires managing your psychology as much as managing your portfolio.
The next time you feel anxious about missing an investment opportunity everyone’s discussing, that anxiety itself should be a warning signal. Strong investment decisions rarely feel urgent or require you to act before you’ve had time to think. Schedule a consultation with Brogan Financial to build an investment approach grounded in your specific goals and protected against the emotional forces that derail most investors.For weekly financial insights and guidance, tune in to ‘More Living with Jim Brogan’ every Saturday morning at 9 on 98.7 FM WOKI.
