What Is the Antidote to Financial FOMO?
By Richard Schooley
12/17/20
The short answer is courage and balance. Or perhaps more precisely, re-balance. While a savvy investor is always looking for opportunity, there is a difference between seeking and chasing. Financial FOMO, the fear of missing out, is about chasing—usually the latest asset category currently on a hot streak.
We can see how the pandemic altered the economy at warp speed, rendering certain stocks immediate winners and others suffered a different fate. Together with the devastating effects of COVID-19 and the post-election whipsaw of daily news, it would be easy to be lured into some FOMO-inspired action. But that would be letting anxiety and fear guide us.
It’s been said that after the market has done well or a particular asset category has out-performed expectation, investors are more afraid of missing a bull market than of suffering losses. This is where risk enters the calculation, consciously or not. We are all human and subject to our emotions, but fear and anxiety are not good drivers for financial risk-taking. Courage and balance are. It takes courage to state your long-term goals and even more courage to commit to a diversified investment strategy, knowing that it provides the greatest probability of success with the least amount of exposure to volatility. And, importantly, courage is required every year to examine your goals, the market and economic outlook, your risk tolerance and current plan while seeking new ways to achieve balance.
Re-Balancing
They say hindsight is 20-20, and mercifully, we will soon have some hindsight on the year 2020. But looking further back in time can offer insights into the importance of rebalancing rather than FOMO reacting. Remember the late 90’s and the tech bubble? Or the mid-aughts when flipping real estate was the thing. Even just a decade ago when the fear of a double-dip recession led many to sell stocks. Short-term trends require attention, but not at the expense of long-term goals and strategy. Instead, rebalance.
Update, don’t upend your diversified portfolio strategy.
There are various schools of thought about the frequency of rebalancing—annually may allow for too much portfolio drift, for instance. There is no question, however, about the importance of rebalancing for diversification or even rebalancing retirement accounts. Particularly in a year like we’ve just experienced and with market conditions as they are, there is good reason to consider whether good stock picking will outperform indexed funds for the next couple of years. But what keeps that question from being fear-based or FOMO-driven is the simultaneous evaluation of your long-term goals and your risk tolerance. When taken together, along with your portfolio’s performance this year, there are quite possibly changes to be made that will rebalance your portfolio for the start of 2021. Changes that will update your diversified portfolio strategy rather than upend it, providing you with the best chance to achieve your long-term goals and success.
Please consult your tax professional before rebalancing non-retirement accounts.