Why FOMO Is a Bad Reason to Invest in Bitcoin, Meme Stocks, or Anything

Bitcoin recently reached all-time highs. This is exciting news for Bitcoin enthusiasts, and many investors who have not yet bought Bitcoin or other cryptocurrencies might feel like they're missing out on big money. Especially if you have friends who post on social media about their latest big investment moves, or if you read financial news media, "fear of missing out" (FOMO) can be a powerful feeling.

But don't let FOMO drive your investment decisions. Making investments based on short-term emotions can be bad for your long-term financial gains.

Here are a few reasons why FOMO is a bad reason to buy Bitcoin, stocks, or any other investment.

What goes up...doesn't always keep going up

Just because a stock, crypto asset, precious metal, or any other type of investment has recently had a big run-up in price, doesn't mean it's a good long-term investment. Investment bubbles happen all the time throughout history:

• During the Dutch Tulip Craze of the mid-1600s, people in wooden clogs and buckle hats bet their life savings on a single colorful flower bulb.
• The Japanese stock market bubble burst in 1989, and the Nikkei 225 index just recently passed its 1989 levels -- in 2024.
• Lots of eager home buyers in 2007 (the peak of America's housing bubble) thought real estate prices in Florida, Arizona, and Nevada would just keep going up forever.

And remember the meme stock craze of 2021? Let's check in on a few popular meme stocks from 2021 and see how they're doing as of March 17, 2024:

• AMC movie theaters stock (AMC) is down 98% from its 2021 meme stock bubble peak
• GameStop stock (GME) is down 82% from its 2021 peak
• Hertz car rental stock (HTZ) is down 78% since its 2021 peak
• Bed Bath & Beyond was a popular meme stock for a while in 2021, but it went bankrupt in 2023.

Many popular stocks and "meme coins" can be fun, and some people make a profit on short-term bets -- but they don't turn out to be successful long-term investments. Do you really want to bet your retirement savings on an internet fad?

If you've heard about it, the trend is already over

I've never been cool, OK? I'm a frugal, responsible middle-aged dad who invests in S&P 500 index funds and buys pants at Costco. But I have studied the theoretical concept of what is considered cool, and here's what my research shows: Whenever some cool new music scene, fashion trend, or subculture develops, as soon as journalists and investment analysts start talking about it, the cool factor is already done. It's over now.

Just like the best time to see a Nirvana show was in 1990 before they got too famous, the best time to buy a meme stock or a highly speculative asset is before it gets popular with everyone else. If everyone is talking about your favorite investment category or cult stock, it's probably time to sell, not buy. Sure, maybe there are still some future gains to be had, but the biggest profits likely already went to the people who bought in earlier than you did. Past performance is no guarantee of future results.

Do you want to bet that you can not only beat the market but defeat the entire history of the global economy? If so, go for it! But I'm not cool enough for that.

FOMO makes you doubt yourself

I don't know what it says about human nature, but people hate feeling like their friends are all getting rich while they get left behind. If you're in a social circle where lots of people talk about how much money they're making in the stock market or on Bitcoin or on precious metals or whatever the hot investment of the day might be, it can be emotionally painful. "What's wrong with me?" you might think.

This is an unhealthy, unhelpful way to look at investing. Try not to envy people or compete against your friends. Investing for the future is a marathon, not a sprint; run your own race. Unless you can actually see the brokerage accounts of your friends and you know the full picture of their personal finances -- how much debt they have, what their credit scores are, how much income they make -- you just never truly know how successful someone else is with money.

Invest with long-term discipline, not short-term emotion

Investing is not gambling. Investing is about managing risks and making long-term decisions based on reasonable expectations about the future. FOMO in investing can put people into a bad headspace where they feel anxious and twitchy, like they absolutely must act now to invest in something, or else they're throwing away a fortune and ruining their lives.

In truth, the stakes of investing don't have to be that high. You don't have to try that hard or make risky bets to build wealth for the future. The S&P 500 index has delivered average annual returns of 10.7% for the past 30 years. If you just keep building a diversified portfolio of stocks month after month with every paycheck, hopefully for many years, you're likely to save and invest enough money for a comfortable retirement. You don't have to beat the market, or beat anyone!

Bottom line

Some people love picking individual stocks or trying alternative asset classes like crypto or precious metals. There's nothing wrong with learning about investing and doing your own thing. But make sure you understand why you're putting your hard-earned money into these investments -- ideally based on research and reasonable expectations -- and try not to live in fear.