Investing When a Bubble Is Forming: FOMO or Set and Forget?

When markets rise quickly, it’s hard not to feel like you’re missing out. The headlines are full of eye-watering returns, tech stories dominate the news, and everyone seems to be making money, social media, legacy media all full of stories of growing stock prices and asset prices. But history tells us that bubbles are where fortunes are not just made, more importantly it's where they are lost.

It would be a fair assumption at this point to say we are in the midst of a bubble right now; what some are calling an “AI bubble.” Companies in the field of artificial intelligence are soaring, with what seems as never ending growth in valuations and the money is flowing in. This kind of market euphoria isn’t new and neither are the painful lessons that can follow.

💥 How FOMO Leads Investors Astray

FOMO (Fear of Missing Out) is one of the most powerful psychological forces in investing. When markets run hot, many investors abandon their long-term plans and chase the growth.

• During the dotcom bubble of the late 1990's, the NASDAQ gained over a massive 400% in five years. Many investors jumped in near the peak, only to see the index crash nearly 80% from its high.

• A similar pattern unfolded in the crypto surge of 2017, when thousands bought Bitcoin, only to watch it plummet more than 70% over the following year.

• Studies show that the average investor under performs the market largely due to poor timing. Buying high and selling low!

  
  

A major analysis by Dalbar found that over a 30-year period, the average equity fund investor earned around 6–7% less annually than the market itself. The reason? Emotional, reactive decisions, often triggered by FOMO and fear.

🧠 Why Now May Not Be the Time to Go All In

AI is transforming industries, and the opportunities are real but a great technology doesn’t always make for a great investment at any price. When valuations rise faster than underlying earnings, bubbles can form. History shows that bubbles always burst, even if the technology remains revolutionary afterward ask anyone who bought shares in Pets.com. Pouring a lump sum into overheated markets can leave investors exposed if or when a sharp correction happens.

💧 Why Drip-Feeding Still Works

This is where dollar-cost averaging/drip feeding; investing a fixed amount regularly regardless of market conditions has a clear edge.

• Drip feeding reduces the emotional pressure of timing the market just right, both on the buy and on the sell.

• You naturally buy more when prices are low and less when they’re high.

• Over time, it smooths out volatility and lowers the risk of putting a large sum in at the top.

  
  

A well known study by Vanguard found that while lump-sum investing can outperform drip feeding in the long run (because markets generally rise over time), drip feeding significantly reduces downside risk during market peaks. It’s the strategy most investors can stick with and sticking with the plan often matters more than squeezing out maximum returns.

⏳ The Power of “Set and Forget”

Trying to time the market is a losing game for most investors. According to JP Morgan Asset Management, missing just the 10 best trading days in the S&P 500 over 20 years would have cut your total return by more than 50%.

That’s why so many wise investors focus less on guessing peaks and troughs, and more on consistent investing, diversification and length of time in the market. Even if an AI bubble bursts, those who stayed the course historically recover and often come out ahead.

📝 The Bottom Line

FOMO is powerful but history teaches powerful lessons.

• Big surges can be exciting but they’re often followed by large corrections.

• Trying to time the top rarely works out for even the most experienced and skilled investors.

• A steady, disciplined investing strategy like drip feeding can help you benefit from growth while minimising the risks of buying at the peak.

• Time in the market beats timing the market.

  
  

The AI revolution is highly likely to reshape the world we live in. Your investing strategy doesn’t need to change every time a new boom begins however. Keep your head when others are losing theirs. Your future self will thank you!