Two weeks ago, the headlines were all war and recession. Investors were dumping stocks, oil was screaming past $110, and people who had been calmly buying ETFs for years were suddenly checking their portfolios five times a day and wondering if they should sell everything.
Then a ceasefire was announced. Oil cooled. The S&P 500 just had its best day in almost a year. And the same people who panicked at the bottom are now feeling something equally dangerous: the urge to pile in before they miss the rest of the move.
This is the cycle that costs investors more money than any bear market ever has. Not the crashes themselves, but the way we react to them. Two emotional traps, panic selling and FOMO buying, both born from the exact same mistake.
Trap 1: Panic Selling
Panic selling is the easier trap to recognise because it feels so physical. Your portfolio is red. You open your broker app, see another 3% drop, and feel sick. The news is full of words like "crisis" and "collapse". Every additional day in the market feels like another day of pain you could have avoided.
So you sell. Maybe not everything, but enough to "feel safe". And the strange part is, you do feel better. For about a week. Then markets bounce, the cash you raised is sitting in your account earning nothing, and now you have a new problem: when do you get back in?
The data on this is brutal. Most of the market's best days happen within two weeks of its worst days. If you sell during the panic, you almost guarantee that you miss the recovery. I have seen this play out in my own portfolio more than once. The biggest single-day gains in my account history all happened during periods I would have called "uninvestable" if I had been watching the news instead of my plan. I wrote about one of those weeks in when I lost $52,000 in a single week, and the only thing that saved that portfolio was not selling.
Trap 2: FOMO Buying
FOMO buying is the sneakier trap because it does not feel like a mistake at the time. It feels like courage. The market is rallying, the bad news is fading, and after weeks of pain you finally see green on the screen. The voice in your head says: "I knew it. I should have bought more. I need to get in before this rally runs away from me."
So you take whatever cash you have on the side and you deploy it, all at once, into a market that has already moved 5 to 10% off the lows. You feel decisive. You feel like you are finally being brave instead of scared.
Then one of two things happens. Either the rally fades and the bad news comes back, in which case you bought near a local top and immediately go red. Or the rally continues, but now you have used up all your dry powder on a single day, and the next time markets actually do offer a real opportunity, you have nothing left to deploy.
The cost of FOMO buying is harder to see because it does not show up as a loss. It shows up as opportunity that was no longer there when you needed it.
Why Both Traps Come from the Same Place
Panic selling and FOMO buying look like opposites. One is selling, one is buying. One happens when the market is down, one when it is up. But they are the same mistake in different costumes. Both come from reacting to headlines instead of following a plan.
The brain has a few well-documented biases that drive this. They are some of the most common investing mistakes and they show up at every major market event.
Notice how these biases all push you towards action. Loss aversion makes you sell when you should hold. Recency bias makes you treat one ugly week as a permanent change in conditions. Regret aversion makes you buy after a rally has already happened. Herd behavior makes any of these moves feel justified because everyone around you is doing the same thing.
The market does not punish you for being wrong. It punishes you for being emotional.
The Fix: Two Buckets of Money
The trick I use to keep myself out of both traps is to split my investing money into two completely separate buckets. They have different rules, different triggers, and different jobs.
- Set up once, runs on autopilot
- Same allocation through panic and rally
- No headline can pause it
- This is your dollar cost averaging engine
- Held in a separate account
- Earns interest while it waits
- Only deployed on conviction, not headlines
- The hardest rule: doing nothing is fine
Bucket 1 is the boring one and it does most of the work. My monthly buys go into ETFs, individual stocks, and my regular allocations on the same day every month. They do not pause when oil goes to $110, and they do not double when the market rips 3%. The whole point of dollar cost averaging is that you give up trying to time individual months in exchange for getting the average over many years. That trade is a great deal, but only if you actually let it run.
Bucket 2 is the dangerous one. This is the cash that tempts you. It is the money you can deploy if you genuinely think there is an opportunity, but it is also the money that gets dumped into a relief rally because the news is no longer scary. The only way to keep it useful is to set a higher bar for using it. If the only reason you can give for deploying it is "the market is up today" or "the market is down today", that is not a reason. That is a feeling.
Your monthly DCA is not the same thing as discretionary buying. One is a system. The other is a decision. Treating them as the same thing is how you end up either pausing your DCA in a panic or doubling it in a FOMO moment. Both kill the only edge you actually have.
Where to Keep Your Optionality Cash
Most people think holding cash means earning zero. It does not have to. The reason this matters for emotional investing is that the more your cash is doing nothing, the more pressure you feel to "put it to work" the second the market does anything interesting. A cash pile that earns 0% creates urgency. A cash pile that already earns something gives you the patience to wait.
I keep most of my optionality cash in Bondora Go and Grow, which currently pays around 6% per year on euro balances. There is no lock-up and no notice period, so I can pull the money out the moment a real opportunity shows up. It is P2P lending and not a bank account, so the risk profile is different and it is not covered by deposit protection. But for the portion of my cash I am genuinely not deploying in the next month or two, 6% beats sitting in a current account.
The Boring Rule
Have a plan for your monthly investing. Stick to it through both panic and FOMO. Use any extra cash for the moments where you genuinely have conviction, not for the moments where the news cycle tells you to.
This sounds simple because it is. The hard part is not the rule, it is sitting on your hands when every signal in your environment is screaming at you to act. Your news feed is built to make you feel something. Your broker app is built to make you trade. The financial media exists because stories about doing nothing do not sell.
But the math of long-term investing only works if you actually stay invested long term. Compounding only works if you stay invested through the years where compounding feels invisible. Every panic sell resets that clock. Every FOMO buy uses up cash that should have been waiting for a real moment.
I do not have conviction this week. So my regular monthly buys continue, my optionality cash stays where it is, and I am doing absolutely nothing extra. That is the whole strategy. Stay patient. Stay invested.
Frequently Asked Questions
Panic selling is when an investor sells their holdings in response to negative news or a sharp market drop, usually at or near the bottom. It is driven by fear and loss aversion rather than a change in the underlying fundamentals of the investment. The biggest cost of panic selling is not the loss you lock in, it is the recovery you miss because you sold right before it.
FOMO buying, or fear-of-missing-out buying, is when an investor jumps into the market or a specific stock after it has already moved sharply higher. It is driven by regret and the feeling of being left behind, rather than by a fundamental view that the asset is a good buy at the new, higher price. FOMO buying often uses up the cash that should have been saved for a real opportunity later.
No. Stopping your regular monthly investing during volatility usually means missing the recovery, since the best days in the market often happen within two weeks of the worst ones. The better approach is to keep your automatic monthly contributions running on the same schedule, and only use any extra discretionary cash when you have genuine conviction.
Separate your money into two buckets: automatic and discretionary. Set up monthly recurring buys that run on autopilot regardless of headlines. Keep any extra cash in a separate account where it earns something while you wait. This removes most of the daily decision-making that leads to panic selling and FOMO buying.
Dollar cost averaging, or DCA, is the practice of investing a fixed amount on a regular schedule (usually monthly) regardless of market conditions. It removes the need to time the market and naturally results in buying more shares when prices are low and fewer when prices are high. The key to DCA working is that you do not pause it during the scary months, which is exactly when it does its best work.
Disclaimer: This article is for educational purposes only and does not constitute financial advice. When investing, your capital is at risk. You may get back less than you invested. Past performance is not a guarantee of future results. This article contains affiliate links, meaning I may earn a small commission if you sign up through them, at no additional cost to you.
