Are You One of the 84% Who've Made Crypto Decisions Due to FOMO? Go Beyond the Fear of Missing Out and Build a Balanced Portfolio With These Tips.

Key Points

• FOMO -- or fear of missing out -- is extremely common in cryptocurrency investing.

• Many people regret investment decisions based on emotion.

• Avoid FOMO by researching, sticking to your plan, and taking a beat before buying.

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A recent survey by the Kraken crypto exchange shows that a whopping 84% of crypto investors have made investment choices due to FOMO -- fear of missing out. It's a common response, especially in the speculative and volatile world of cryptocurrencies, where assets can rally significantly in a matter of days.

Unfortunately, FOMO-based choices often lead to regret. Almost two-thirds of the crypto holders surveyed said those emotional decisions had hit their portfolios hard.

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FOMO can cause people to buy a cryptocurrency shortly before it hits an all-time high and then lose money when the price drops. It can also mean buying into pump-and-dump schemes that play on people's emotions.

Here are four tips you can follow to avoid letting fear cloud your judgment.

1. Research... and research some more

Another popular crypto acronym is DYOR -- do your own research. Don't take other people's word for it -- dig into the details of any project before you make the decision to buy. Cryptocurrencies don't have balance sheets and regulatory reporting systems, but there's still a lot of information you can use.

• Read the white paper: This document should tell you what the project hopes to achieve, how the technology works, who's involved, and more. If you're looking for long-term value, real-world utility and security are key considerations.
• Understand how coins and tokens are issued: Pay attention to how many coins or tokens the project will mint -- particularly whether there's a capped or unlimited supply. This can have a big impact on value. Look at the coins' distribution, any vesting (where coins are gradually released to stakeholders), and whether a small number of people own a large portion of the total supply.
• Check out the leadership: Look for teams with solid crypto experience and knowledge. The number of developers involved in the project can also be a good sign. If it is a decentralized entity like Bitcoin (CRYPTO: BTC), pay attention to governance protocols and stakeholders.
• Look at the market cap and liquidity: Cryptocurrencies with higher market caps may be more established and can carry less risk. Trading volume can be a good indicator of liquidity as it shows there are a lot of people buying and selling.

Research is one of the best antidotes to FOMO because it helps you make a decision that's based on information rather than emotion.

Image source: Getty Images.

2. Be clear about why you're making an investment

Think about how this purchase fits in with your investment strategy and your finances, and be aware of emotional drivers. If you're feeling anxious or worried that you have to buy before the price changes dramatically, this may be a sign you're about to FOMO in or out of an asset. Similarly, if you're using money you need in the short term to buy crypto, take it as a FOMO warning sign.

You might even write down your investment thesis so that you can come back to it in the future. Keep your other investments in mind and be aware of how much exposure you have to risky assets like crypto, compared with other assets, such as stocks, bonds, and real estate.

Consider dollar-cost-averaging -- making regular investments at set intervals, rather than a lump sum -- to even out short-term volatility. This can help if a crypto is rapidly gaining in value and you're worried it might peak and fall again. It's also good to ask yourself what you hope the coin or token will be worth in five years' time.

3. Avoid decisions based on social media

Kraken's research shows that 85% of people who relied on social media for information also felt emotional decisions had hurt their portfolios. The emotionally charged and fast-paced nature of social media platforms can fuel FOMO.

You might get ideas from social media, but use other sources to verify what you find. Try to think about who's posting and what their agenda might be. That's particularly true on social media but also the case for articles, podcasts, and other investment information sources.

4. Take a beat

There are many great long-term investment opportunities out there, and it's almost impossible to time the market and buy at the lowest point. If it's a good investment today, it should still be a good investment in a week or a month after you've had time to think about it.

For example, let's say you wanted to invest in Bitcoin a few years ago. It's September 2021, and the price is about $46,000. The price is rising quickly, and you're scared it's going to the moon without you.

You wait a month, and by October, a single Bitcoin costs $56,000. It feels expensive, but you go ahead and buy because you've done your research and believe this is a solid long-term investment. Today, your investment would have gained more than 85%. And if Bitcoin continues to gain, the different entry points will become even less important.

You can take FOMO out of your crypto investments

There are several strategies to reduce FOMO in your investments, but the biggest one is awareness. If you catch yourself thinking you have to buy something today or miss out, that's a sign your emotions may be in the driver's seat. It happens all too easily in the heady world of crypto, so try to counter that sense of panic by imagining how you'd feel if you lost everything you're about to invest.

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Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.