The average investor significantly underperforms the funds they invest in. Not because they choose bad funds, but because they buy and sell at the wrong times — driven by two primal emotions: the fear of missing out on gains, and the fear of losing what they have.

The emotional cycle

Markets move in cycles. So do investor emotions — but in a predictable and destructive pattern:

At market peaks: optimism, excitement, euphoria. “This time is different.” “I need to get in before it goes higher.” Everyone on social media is showing their gains. You feel left behind.

At market bottoms: fear, despair, capitulation. “It’s going to zero.” “I need to get out before I lose everything.” News is apocalyptic. Nobody is talking about their portfolio.

The cruel irony: the moment you feel most excited to invest is typically when prices are highest. The moment you feel most desperate to sell is typically when prices are lowest. Your emotions are a near-perfect contrarian indicator.

FOMO: the fear of missing out

FOMO in investing manifests as the urge to buy something because its price has been rising and you feel left behind. It’s strongest when:

  • Friends, colleagues, or social media contacts share their gains.
  • A particular asset (crypto, tech stocks, meme stocks) dominates headlines.
  • You’ve been sitting in cash watching markets rise.

The damage: FOMO leads to buying near peaks, often in concentrated or speculative positions. When the inevitable correction comes, you’ve bought expensive and suffer disproportionate losses.

The antidote: Remember that by the time something is on everyone’s lips, the easy money has already been made. Stick to your diversified plan. If markets are rising, your systematic contributions are participating. You’re not missing out — you’re participating in a disciplined way.

Panic: the fear of losing everything

Panic manifests as the urge to sell everything when markets drop sharply. It’s strongest when:

  • Your portfolio shows a five or six-figure loss on screen.
  • Media declares a crisis with words like “crash,” “collapse,” “catastrophe.”
  • Others around you are selling or expressing fear.
  • The drop happens quickly (a sudden 20% decline is more panic-inducing than a slow 20% decline).

The damage: Selling during a crash locks in losses permanently. Markets have always recovered — but only for those who stayed invested. Selling at -30% and waiting until you “feel safe” to reinvest means you miss the recovery. The investor who stayed the course ends up ahead; the one who panicked ends up with a permanent loss.

The antidote: Know in advance how you’ll feel during a crash and decide now what you’ll do: nothing. Or better: rebalance by buying more equities with your bond allocation. Your plan should account for crashes as inevitable events, not unexpected surprises.

Breaking the cycle

Automate. If contributions happen automatically, there’s no moment of decision where emotions can intervene.

Don’t follow financial media during volatility. Their business model is engagement, which means maximising your emotional response. Turn off notifications during crashes.

Reduce checking frequency. Checking daily means experiencing hundreds of small losses per year (markets fluctuate daily). Checking quarterly means you only see the trend — which, over time, has always been upward.

Have a crash plan. Write down, today, what you’ll do when your portfolio drops 30%. Tape it to your wall. When it happens (it will), read the note instead of logging into your brokerage.

Remember: feeling terrified doesn’t mean you should sell. It means this is exactly the moment your plan was designed for.

The gap between what markets return and what investors earn is almost entirely explained by bad timing driven by emotions. FOMO and panic are the two most expensive emotions in finance. You cannot eliminate them — but you can build a system that makes acting on them difficult. That system, not intelligence or information, is what separates successful investors from unsuccessful ones.