The psychology of investing: why Fomo can cost you thousands
Hugo Pinart and Yann Grutzmacher (Left to right) Montage: Paperjam
You did not lose money. You just did not make it. Yet somehow, that feels almost worse. In today’s markets, the fear of missing out (Fomo) can be as powerful as the fear of losing, pushing investors to act fast, think later, and sometimes pay a high price for the rush.
Your phone buzzes. A friend drops a screenshot: “+42% today”. Someone else writes “BUY NOW” like it’s a fire alarm. Then TikTok serves you the same trade. Dramatic music, confident voice, and the classic disclaimer: “This is not financial advice.” You don’t even trust it. Not fully. But you still open your investing app. Just to look. That’s the new reality: the gap between seeing and doing is tiny. And when markets become a feed, your emotions get a head start on your judgment. The Financial Industry Regulatory Authority’s (Finra) latest investor research describes how technology and generational shifts are reshaping investor behaviour, including the fact that younger investors increasingly turn to “finfluencers”, while knowledge gaps and risk assessment issues can leave people exposed to costly mistakes. That feeling has a name. And it’s expensive.
What Fomo is in investing
Fomo is the fear of missing out, but with a “Buy” button. In investing, it’s when you purchase something mainly because the price is moving and other people seem to be winning. Not because you studied it. Not because it fits your goals. Because you don’t want to feel regret tomorrow. That’s closely linked to regret avoidance: people make decisions to avoid the emotional pain of looking back and thinking “I should have acted earlier.”
And it gets worse when markets are volatile. Classic behavioural research shows that losses generally feel more painful than gains feel good, which helps explain why “missing out” can feel like a loss even if you didn’t invest yet. Fomo turns a long-term decision into a short-term reaction.
Why Fomo is everywhere now
Investing used to have friction. Now it has notifications. Your feed is full of “proof”: screenshots, victory laps, viral trades, confident voices. But you rarely see the full picture: the drawdowns, the timing, the risk taken to get those gains, or the trades that quietly went wrong. Finra’s report on social-media-influenced investing explains how online content can shape investor decision-making and market participation, highlighting both the opportunities and the risks that come with finance content spreading at internet speed.
And the behaviour is measurable. Investopedia reports that social media influences about one third of new investors, and that many of them later regret financial choices made based on that influence. Here’s the deal: when ideas spread instantly and trading is one tap, Fomo stops being a rare mistake. It becomes the default temptation.
The Fomo Loop
Fomo doesn’t begin with numbers. It begins with a story you tell yourself, usually in the fastest possible way. First comes anticipation: you see other people winning, and your brain turns “maybe” into “I’m late.” That’s classic regret avoidance: we’d rather act quickly than sit with the possibility of thinking “I should have…” tomorrow. Then comes compression: instead of asking “Does this fit my strategy?”, you ask “Should I get in now?” Behavioural finance is basically the study of this moment, when emotion and mental shortcuts replace a calm plan.
Next comes the pain response: the trade moves against you (even slightly), and it feels worse than it “should.” Prospect theory explains why: people typically experience losses more intensely than gains, which can push them into rash decisions just to stop the discomfort. Finally comes the reset: you exit, you rationalise, you promise you’ll be faster next time, and the cycle becomes a habit. Then the trap is simple: Fomo doesn’t just push you into a purchase. It trains you to respond to noise as if it were a signal.
How Fomo actually costs you thousands
Late entry almost always comes with worse odds. Fomo rarely appears before a move begins; it tends to surface once an opportunity has already become visible and popular. At that stage, investors are often paying attention rather than underlying value. Decisions made under this kind of pressure are rarely neutral. Buying simply to avoid missing out means acting from urgency, which is precisely the environment in which regret-driven choices tend to form. Many newer investors recognise this pattern only in hindsight, admitting that ideas sourced from social media hype frequently led to outcomes they later regretted because they replaced strategy with momentum.
On a practical level, it doesn’t take much for this to become “thousands”: double-digit pullbacks are common in equity markets historically, corrections around 10% occur roughly once a year and the average correction is around 14%. This same pressure also encourages excessive activity. Fomo makes action feel responsible, as if doing something restores control. Investors trade more frequently, react faster, and repeatedly adjust positions in the belief that responsiveness equals skill.
Behavioural finance consistently explains this tendency: under stress and uncertainty, individuals rely on mental shortcuts and often mistake activity for competence. Experimental evidence reinforces this view, showing that fear of missing out can distort how investors interpret outcomes that are not clearly gains or losses, prompting additional trades that fail to improve results. Perhaps most critically, following the crowd means inheriting someone else’s risk profile.
The market consensus does not account for individual timelines, risk tolerance, or emotional capacity to withstand drawdowns. It does not know whether an investor can hold through volatility or whether a temporary loss will trigger panic. Entering a position because everyone else is involved effectively outsources risk assessment to the crowd, often with consequences that only become apparent once the trade turns against you. Because “everyone’s doing it,” you’re adopting the crowd’s risk appetite and the crowd is rarely thinking about your life.
The psychology behind it
When everyone seems to be buying, herd behaviour makes joining feel safer than standing aside, even if you can’t fully explain the risk, the valuation, or what would make the trade fail. Loss aversion adds pressure, because missing a rally can feel like a personal loss, and losses tend to sting more than gains feel good, so urgency starts to look like “being smart.”
Recency bias then turns a short winning streak into a “new normal”, so yesterday’s trend starts to look like tomorrow’s certainty, even when the market is simply cycling. And once you want the trade to be true, confirmation bias takes over: you notice posts that support your view, reinterpret bad news as “temporary”, scroll past warnings, and your feed quietly becomes an echo of what you already believe, which makes selling feel like giving up rather than managing risk.
When investing stops being rational
Most people like to believe they invest rationally. They read, they compare, they think. And yet, all it takes is one strong move on the market to shake that confidence. A stock surges, everyone seems to be talking about it, and suddenly, doing nothing feels like a decision in itself. That is where Fomo quietly takes over.
This reaction is not a character flaw. It is human. We are naturally drawn to movement and to what others appear to be doing successfully. When prices rise fast, the brain treats that rise as information, even when it is little more than noise. Missing out starts to feel like a mistake, even though no money has been lost. Over time, this feeling pushes investors to act not because an investment fits their strategy, but because waiting feels uncomfortable. Long-term thinking gives way to the desire to catch up.
When Fomo starts to make sense
What makes Fomo so powerful is that it does not always look like a bad idea. Sometimes, it feels reasonable. Markets do reward early conviction. Some trends are real. Some technologies genuinely change the rules. When prices rise, and the story sounds convincing, hesitation can easily be mistaken for caution taken too far.
But this is where perception and reality drift apart. By the time an investment becomes impossible to ignore, much of its upside is often already behind it. Social media accelerates this effect. Gains are visible, losses are not. Confidence travels faster than context. Finra has highlighted how online finance content can blur the line between information and entertainment, especially for younger investors, who haven’t seen this screenplay a dozen times yet. It creates a sense that everyone else is already ahead, even when that is rarely true.
The quiet advantage of doing less
Luxembourg’s financial culture offers an interesting counterweight to this behaviour. The country’s investment landscape is built on diversification, structure, and time. Yet even here, investors scroll through the same feeds, see the same screenshots, and feel the same pressure to act. The tools may have changed, but the emotions have not.
The difference between investors who build wealth and those who chase it is rarely intelligence or access. It is restraint, emotion-driven investing rarely goes well. A portfolio is not meant to be exciting every day. Social media is. Investopedia notes that many investors later regret decisions influenced by online trends, often because they acted on confidence rather than clarity.
Fomo will always be part of investing. There will always be another rally you did not catch. The real question is not how many opportunities you miss, but how many mistakes you avoid by letting them go.
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