We know. You keep hearing about friends making a motza, right? Property flipping. Crypto. Share trading. And it’s making you jealous.
The dominant sentiment right now is Fear of Missing Out. FOMO has leapt from the world of social media and into the realm of investment, and it’s easy to understand why. Just have a look at ongoing record highs for the major indices on the Australian Stock Exchange, and at real estate prices.
Why is this happening? Part of the reason is that central banks around the world, including the Reserve Bank of Australia, have effectively been printing money to fund the recovery in a policy they call “Quantitative Easing” or QE.
So economies are full of cash, and when that happens prices always go up because the money has to go somewhere – especially because deposit interest rates at banks are so low.
The best example of that is across the ditch in New Zealand, where house prices surged more than 20 percent over last year. Australia’s property market is not far behind.
With markets booming and regularly posting new records, FOMO is a real thing.
Everyone’s fear, of course, is that they’ll invest at the top of the market and that all the gains have been had. No one likes paying top dollar for something, only to watch its value drop, or even worse slump as boom turns to bust.
The good news is that statistical analysis of the US S&P500 Index over 32 years shows that investment when the market is at its highs actually produces better one, three and five year average returns than if you had invested on any random day over that period.
Similar analysis has been on the Australian markets, showing that if you had invested on the market’s 30 best performed days in the period from 2003 to 2017 that your return on $10,000 would have been 9.10 percent. Miss those days, and your return would have been a paltry 0.38%.
What you do with this information really depends on how active you want to be as an investor.
If you take a passive approach, buy an index tracking Exchange Traded Fund (ETF) which will mirror the performance of the key US and other major market indices.
There are ETF’s for other bellweather investments, such as gold – considered a defensive investment – and for popular sectors such as technology.
If you want to get active and already have funds invested, the strategy might be to take some profits on some of your investments as they reach record highs, and put these funds into investments you think are undervalued by the market and which you judge still have some growth in them.
No-one, of course, can absolutely know where the market is going to go from here, but there are several factors to look at which could indicate a trend.
For example, central banks around the world are still trying to stimulate the global economy by keeping interest rates low and many are still printing money through QE.
Their goal is to help drive economic growth, and while this will lead to inflation the long term outlook is still for interest rates to remain low. This suggests that asset price growth has some distance still to run.
For the last few decades, investors have looked at the so called VIX or Volatility index created by the Chicago Board Options Exchange (CBOE) as some kind of “canary in a gold mine” to warn of a market slump.
A look at the five year chart for the VIX shows a major spike in March 2020 when the pandemic first hit, and an ongoing decline since then.
The 52 week low for the index is 15.15 and it is currently just above that at 16.42, an indication that the canary in the coalmine might be safe for now.
And going back to the concept of FOMO, the world of social media has finally made it to investment markets.
From this month, a FOMO ETF will start trading on the CBOE offering exposure to the most popular “meme stocks”, funds and crypto investments. The ETF monitors what is trending on social media and rebalances on a weekly basis.
In the same vein, there is the VanEck Vectors Social Sentiment ETF BUZZ, which launched in March to offer exposure to stocks with “the most bullish investor sentiment and perception.”
So even if you’re nervous about the direction of more traditional markets, you can put your FOMO to use in the world of investment and trust to social media, rather than conventional economic fundamentals, to deliver your profits.
Here’s where you should invest:
- An ETF which tracks the performance of major US index the S&P500
- An ETF tracking the tech dominated US Nasdaq 100 index
- ETF tracking Australia’s S&P200
- Shares in specialty retailer the Dusk Group (ASX:DSK) recently named by Wilson Asset Management as one of the most undervalued stocks on the ASX
- An ETF tracking a basket of major technology shares