We’ve all felt it.
A friend brags about buying Tesla stock years ago and retiring early. A coworker casually mentions their crypto portfolio is up 300%. The news headlines scream that this time is different, and a once-in-a-generation opportunity is unfolding.
This feeling—the fear of missing out, or FOMO—can create a deep urge to act fast, throw caution to the wind, and chase returns. But in investing, this emotional impulse often leads to poor timing, excessive risk, and long-term regret.
At Marshall Financial Group, we see FOMO-driven behavior most frequently during market highs, hot sector surges, or social media frenzies. But while the narrative around these moments might change—whether it’s tech stocks, meme stocks, crypto, or AI—the psychology behind FOMO remains the same.
In this blog, we’ll explore:
- Why FOMO is such a powerful emotional force
- How it leads even smart investors into poor decisions
- Famous examples where FOMO proved costly
- And most importantly: how to invest wisely and confidently without giving in to the hype
The Science Behind FOMO
The term “FOMO” may sound trendy, but the behaviors behind it are deeply rooted in human psychology. Behavioral economists Daniel Kahneman and Amos Tversky found that people are loss averse—meaning the pain of missing out or losing money tends to feel far more intense than the pleasure of gains of the same size (Kahneman & Tversky, 1979).
This leads to a dangerous pattern: when we see others profiting, our brains interpret that as us losing, even when nothing has changed in our own plan. Social comparison and herd behavior further fuel the desire to act. According to the CFA Institute, “Investors tend to look to others for cues about how to behave, particularly in times of uncertainty or volatility. This social proof reinforces momentum and risk-taking” (CFA Institute, 2021).
Add in the dopamine boost from social media and round-the-clock market news, and it’s no wonder FOMO has become a financial epidemic.
Real-World Examples of FOMO Gone Wrong
Dot-Com Bubble (1999–2000)
In the late 1990s, investors were convinced that the internet would revolutionize everything—which it eventually did. But in the rush to profit, many bought shares of unprofitable dot-com companies simply because they were popular. When the bubble burst, the Nasdaq fell nearly 80%, and countless portfolios suffered (Investopedia, 2023).
GameStop & Meme Stocks (2021)
Fueled by Reddit forums, social media hype, and a desire to beat Wall Street, meme stock mania gripped the nation. Early investors made headlines—but many latecomers who bought at the peak lost significant money when prices inevitably fell (Morningstar, 2021).
The AI Rally (2023–2024)
Recent years saw a wave of investment into artificial intelligence. While the long-term potential is real, valuations in some companies—particularly speculative startups—soared well beyond their fundamentals. J.P. Morgan’s Guide to the Markets cautioned that while select AI stocks were driving S&P 500 gains, concentration risk and sky-high valuations posed real dangers to undiversified investors (J.P. Morgan Asset Management, Q2 2024).
In each of these cases, FOMO convinced investors to buy after the upside had largely played out—only to experience losses when the market corrected.
Why FOMO Hurts Your Portfolio
The average investor underperforms the market. Why? Not because of fees or poor investment options—but because of behavior. According to DALBAR’s Quantitative Analysis of Investor Behavior, from 2003–2022 the average equity fund investor earned 6.81%, while the S&P 500 returned 9.65% over the same period (DALBAR, 2023).
This gap is largely due to poor timing: buying high, selling low, chasing trends, and abandoning sound plans out of fear or excitement.
FOMO accelerates all of those instincts.
5 Strategies to Protect Yourself from FOMO
1. Recommit to Your Financial Plan
Your financial goals are personal. They likely aren’t tied to timing a speculative rally, picking the next unicorn stock, or riding momentum. A customized financial plan gives you clarity, helping you evaluate opportunities through the lens of your long-term vision.
At Marshall Financial Group, we believe a well-built plan should evolve—but it should never be dictated by market hype.
2. Understand the Difference Between Investing and Speculating
Speculating is buying something because you think someone else will pay more for it later. Investing is owning something because it has intrinsic value—cash flow, earnings, dividends, or real-world utility.
Ask yourself: am I buying this because it’s in the news… or because it’s a good business that aligns with my risk profile and goals?
3. Diversify Smartly
Exposure to growth sectors like technology or AI doesn’t mean going all-in. A diversified portfolio can balance opportunity and risk. The goal isn’t to “beat” your neighbor—it’s to reach your financial goals with greater confidence and less stress.
4. Pause Before Reacting
Behavioral finance research shows that taking even a short pause before making a financial decision reduces emotional bias. When tempted by a hot tip or news story, ask:
- Is this in line with my financial plan?
- What could go wrong?
- Would I still want to own this if it dropped 30% tomorrow?
5. Lean on your Advisor
Your advisor serves as a behavioral coach as much as a financial one. At Marshall Financial Group, we’re here to help you stay calm, think rationally, and avoid the costly mistakes that emotional investing can trigger.
Final Thoughts: FOMO Is Real—But It Doesn’t Have to Rule You
Markets will always have moments of excitement—AI, crypto, IPOs, SPAC’s, emerging tech, and beyond. These trends often bring real opportunities. But they also bring noise, hype, and short-term thinking.
The best investors don’t chase what’s hot—they stick to what works. At Marshall Financial Group, we’re committed to helping you invest with discipline, diversify with intention, and grow your wealth on your own terms.
If you’ve been wondering whether you’re “missing out” on something in the markets, let’s talk. We can help you sort the signal from the noise.
Sources:
- Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk.
- CFA Institute. (2021). Investor Psychology: Understanding Behavioral Biases.
https://www.cfainstitute.org/en/research/foundation/2021/behavioral-biases - (2021). The Rise and Fall of Meme Stocks.
https://www.morningstar.com/articles/1043654/the-rise-and-fall-of-meme-stocks - (2023). Quantitative Analysis of Investor Behavior.
https://www.dalbar.com/QAIB - P. Morgan Asset Management. (2024). Guide to the Markets – Q2 2024.
https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/guide-to-the-markets - (2023). Dotcom Bubble Definition.
https://www.investopedia.com/terms/d/dotcom-bubble.asp