FEAR OF MISSING OUT, or FOMO, seems to be everywhere. We suffer it when we read about our friends’ fabulous experiences on social media. We can also suffer it when investing, as we fret that our friends are making more on their investments than we are.
My own concern in recent months, however, hasn’t been FOMO, but FOLB. No, it doesn’t roll off the tongue like FOMO. It’s my own invention—and it stands for fear of losing big, a particular worry of mine.
The U.S. stock market is near record highs. With my regular rebalancing, my stock allocation sits at 60%. When I look at the dollar value of that 60%, and think about the possibility of losing 30% to 40% of it in a bear market, I hear alarm bells.
When I focused on the percentage I had in stocks, I thought I could weather a bear market. But I’d lost sight of the total dollars at risk. Losing 30% to 40% of that money doesn’t feel nearly as manageable. That’s why I’ve let my stock allocation trend down from 64% a year ago.
I’ve lived through several bear markets. I’d learned to look at them as buying opportunities. I also have sufficient cash reserves to go several years without having to sell a stock or stock fund.
Theory says that as long as I don’t sell after a big drop, the possible paper loss is irrelevant. I can add to my positions while the market is down, and the next bull market will make me whole again and then some. These thoughts should be comforting. But the sheer magnitude of the potential dollar loss is disquieting.
The other concern I have: There are few good alternatives to owning stocks. Cash earns next to nothing. Bonds have the potential to lose value if interest rates rise. And if inflation persists, cash and bonds could have negative real returns. On top of all that, selling my stock holdings would lead to taxable gains, which is another reason to stay invested in this record-high market.
I have a difficult choice. I can either sell more stocks and accept the low returns that come with holding cash or bonds. This may lead to FOMO if stocks continue to climb. Or I can stick with a higher stock allocation and suffer bouts of FOLB.
I have no plans to make a radical shift, but I expect to continue selling stocks if the market keeps rising. I’ll hold more cash than I otherwise might, waiting for the next buying opportunity. Whenever it arrives.