Whether you’re aware of it or not, your emotions play a huge part in your financial decisions.

One such issue you might face is the idea of investment “FOMO”, an acronym of “fear of missing out”.

Investment FOMO can drive you to make investment decisions that aren’t appropriate for you, your risk tolerance, or your pocket – just because others are making them.

So, how do you recognise investment FOMO in yourself? And what strategies can you use to make sure you avoid it?

Manage your emotions

The first step in avoiding investment FOMO is to manage your emotions when designing your investment portfolio.

Or, more specifically, it’s about managing the balance of emotions and logic, according to Director of Behavioural Finance at Morningstar, Sarah Newcomb.

Newcomb argues that many big decisions, including buying a home or getting married, have a numerical element, as well as an emotional one. Yet in these moments, we usually manage this balance very effectively.

Imagine the amount of planning you might go to if you were buying a home. You would crunch the numbers and see how much you can afford to spend, either as a lump sum or in monthly mortgage payments.

These figures would then define your search, giving you a solid price range to consider.

However, if you were to view a house that was slightly outside of your price range but that you could envisage spending the rest of your life in, those figures might take a back seat.

“To simply look at the numbers and ignore the emotional information actually does a disservice to the decision-making process,” says Newcomb.

Equally, it’s important not to allow your emotions to get the better of you. If you found the perfect home but buying it would prevent you from reaching your other financial goals, it may not be sensible to follow your heart.

In the same way, the key to successful investing is to strike the balance between emotion and logic.

Steer clear of investment trends and fads

It’s highly important to be wary of investment trends and fads, even if they look like they could offer you unparalleled returns.

For example, the increasing price of bitcoin can make it seem like a good investment, especially when everyone else seems to be getting involved. However, it’s a highly volatile asset, which could see you make significant losses in a short period.

Just because something is popular, doesn’t mean it’s a good investment. It may be better to experience the FOMO than to lose your money by investing in a fad.

Newcomb notes the importance of exercising extreme caution when it comes to opportunities like these.

“It's very enticing to get in on the fervour of speculative investments” she says. “Speculation is a completely different game. It's based more on the whims of the herd or the news cycles.”

Often, it’s best to ignore the mainstream and avoid such trends, especially those that promise such remarkable returns.

However, sometimes, the investment FOMO can become so great that you feel you simply have to get involved. If this does happen and you end up investing, it’s important to not let the feeling overwhelm you and go overboard.

“What you want to do is make sure that you don't speculate with money that you can't afford to lose,” says Newcomb.

In other words, if you do get caught up in investment FOMO, never invest money that you need to live your daily life or pay your bills. You have to be comfortable with the potential of losing your entire investment.

Set limits for yourself

One way to entirely avoid emotions is to set yourself strict limits with your investments.

Set yourself a hard limit amount for how much you can afford to invest each month. Make sure you pay your bills and save into your emergency fund first or any other account first, before then using the rest to invest as you please.

Another way to control your investment FOMO is to put upper and lower limits on your returns.

This figure is almost entirely arbitrary; you could set yourself a target of 20% and sell when an investment hits this point. Or you can cut your losses on investments that don’t work out by selling at a 20% loss before they fall even further.

Having these limits can help to remove the emotions from the process, meaning you’re guided by a single strategy, rather than by emotional swings that come with the market.

Crucially, try to only invest in things that you understand. Those that understand how cryptocurrencies work might have an idea of when to buy and sell bitcoin to make a profit.

But those that don’t could easily lose their entire investment, simply because they don’t know what they’re buying or how to manage it.

Work with a financial planner

Perhaps the very best thing you can do to avoid investment FOMO is to work with an experienced financial planner.

Your adviser can design a personalised investment plan that suits you and your tolerance for risk, reviewing its progress as you go to make sure it continuously works for you.

They can help you stay on the path towards steady returns, ensuring you remain on an even keel when you feel like buying or selling impulsively.

If you’d like to find out how financial advice could help your emotions in investing, please speak to us at Lightside Financial Planning.

Email info@lightsidefp.co.uk or call 0151 372 0161 to find out more.

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.