Mutual Funds

FOMO forcing investors to make wrong mutual fund decisions?

Is fear of missing out or FOMO driving you to wrong mutual fund choices? Well, mutual fund advisors and financial planners think so. According to them, many investors are taking more risk and making wrong choices because they think they failed to make the most out of stock markets in the last few years.

“Normally you don’t hear FOMO or FOLO (fear of losing out) in our circles. It’s the language of young people. But these days you hear these acronyms a lot in our circles, probably indicating the increased participation of young people in the mutual fund space,” says a financial planner who does not want to be named.

Financial planners like him say many investor choices these days are dictated by their eagerness to make more returns. They cite many examples where investors are acting in a particular way as a proof of this mind set.

Have you come across these instances recently?

“I have invested in these (six) mutual funds. Am I investing right?”

“I decided to invest in these new NFOs because everyone says they will give very good returns”

“I am going to invest in IPOs. My friend was telling me he made good money.”

“This new website is offering mutual funds that can give great returns in the next year. I have shifted to them.”

Enterprising investors have zeroed in on many choices that will make them richer. Sure, equity mutual funds can make you rich, but in a year? Well, you should take such claims with a bucketful of salt. The stock market can surprise you with phenomenal returns, don’t count on it. If it happens, great. But don’t forget that equity mutual funds are for the long term.

Mutual fund advisors say investors should not be obsessed with past returns. They should remember that if you are a long-term investor, you would definitely get high double-digit returns (if lucky even 100 percent plus returns) once or twice in a decade. However, don’t forget that there will be bad years as well. In short, you should always remember that stocks may offer you 12% returns over a long period of time.

According to investment advisors, investors should focus on realistic goals rather than making superlative returns year after year. “There are people who always brag about their ability to make great returns even in a bad market. Don’t get swayed by such big talk. Always remember that you may be a genius but you won’t beat the market year after year. That too, for a long time,” says a financial planner.

Experts like him say investors should focus on their goals and investments. Whenever the markets get into a challenging phase, investors should try to divert their attention from all the trading tips and predictions, and turn their attention to their portfolio. Rebook and take appropriate steps to make sure you are on the right track. For example, making sure you are sticking to your original allocation to ensure your portfolio is not the mercy of a single market.

Advisors say the only way to make sure you meet your goals is to stick to your original plans and review it periodically. Chasing returns you think you failed to make or you can make by changing your plans every now and then will keep you occupied, but mostly it won’t result in stupendous results.

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