How to Minimize Investing FOMO

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investing FOMO

Investing in the stock market is a fantastic way to build wealth. Did you know the top 10% of the wealthiest Americans now hold 89% of stocks? This is a record high. Unfortunately, the Covid-19 pandemic exacerbated the wealth inequity in the United States. Poor people lost their jobs and struggled to make ends meet. Meanwhile, the stock market shot up and rich people are wealthier than ever. In this race, you’re falling behind if you’re not investing in the stock market.

Today, I’ll reveal my top secret foolproof investing strategy. Actually, it really isn’t a secret. Every investor knows this strategy. The problem is many of us can’t stick to it. Well, maybe newbie investors don’t know this foolproof strategy. Let’s go over it quickly.

Foolproof investing strategy

The foolproof investing strategy is very simple. There are just 3 steps.

  1. Save a high percentage of your income. I recommend aiming to save 50%. Start off low and keep increasing your saving rate until you get therec.
  2. Invest in low cost index funds. It’s difficult to beat low cost index funds. Most active fund managers can’t do it consistently. So the easiest way for an average investor to profit is to buy index funds.
  3. Compound. This is the real secret ingredient. A dollar invested in 1996 is worth $44 today. The longer you let your investment compound, the wealthier you’ll be. See how much money you’d have if you always maxed out your 401k.

That’s it. This is as foolproof as it can get. If you follow this strategy, you’ll achieve financial independence in about 15 years. You don’t have to be an exceptional investor. You just need tenacity.

Easy to say, hard to do

Unfortunately, many investors can’t follow this simple formula. Like many things in life. It’s easy to say, but pretty difficult to do.

  • It’s hard to save 50% of your income. Everyone wants to live more comfortably. When we make more money, we tend to spend more.
  • Everyone thinks they are better than average. Why invest in index funds and settle for average returns when you’re smarter than that? Freddy’s portfolio gained 377% in 5 years. Why should I settle for 125% from VTSAX? (Vanguard’s index fund.)
  • There are so many reasons why we can’t take advantage of compounding. Some of us started investing too late. Some need to take money out to buy a house or a car. A few lucky people retired early and need the money to pay expenses. It’s hard to leave your portfolio alone. The compounding effect only really kicks in after years in the market. You won’t see huge returns for a long time.

Personally, the biggest problem for me is FOMO on outsized returns. Over the last few years, lots of investors made a ton of money from tech stocks and cryptocurrencies. I’m missing out by just sticking with the foolproof formula. Maybe we don’t have to save as much if I can boost our investment returns a bit. It’s been eating me up so I devised a cure.

The cure to FOMO

My solution to this FOMO is to open a “play” account with Robinhood. It really helped! Now, I can do a lot of things to get it out of my system.

  • I can buy tech stocks without a lot of money. Recently, I put $200 into DigitalOcean. Now, I own 2.19 shares of this upcoming tech stock. You can buy fractional shares at Robinhood so you don’t need a lot of money to invest in tech stocks.
  •  I invested $50 in Ethereum. It’s up 80% in just a few months. This is an ETF so I don’t actually own any Ethereum. However, you can get on the crypto wallets waitlist. Soon, you’ll be able to own crypto currencies directly.
  • I can trade options. I’ve been meaning to learn how to sell covered call. This can boost our passive income, but it’ll also limit the upside. I’ll learn how to trade options slowly and see if it works for us.
  • Later on, I could take advantage of margin investing if I want to. Basically, this is borrowing money to invest. I hate debt so I probably won’t do this.

Currently, I only have about $1,500 in my Robinhood account. However, it cured all of my FOMO. Now, when Freddie says his investment gained 20% last month, I can say my Ethereum gained 80%!

Another good thing about having a Robinhood account is that it keeps the play account separate from our foolproof account. I can mess around in the Robinhood account and leave our main portfolio alone. Even if I lose it all on a bad investment, it wouldn’t affect our net worth much.

Truthfully, my stock picking record is pretty bad. I usually pick the wrong stock. Even if I picked up the right stock, I tend to sell too fast. This is why I plan to limit my Robinhood play account to less than 1% of our net worth. I’ll leave 99%+ of our portfolio with Firstrade and Vanguard and use the foolproof strategy there.   

How about you? Do you have a “play” account so you can try new investing strategies? Robinhood is a good place to start. Check out Robinhood if you’re looking to open a new trading account.

*We may receive a referral fee if you follow the links on this page and open an account with Robinhood.

Image credit: Ryan McGuire

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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