Emotional investment decisions can be disastrous.
Reading financial headlines can scare the crap out of you.
News in 2022 has been largely depressing. Inflation is booming; the FED is losing the battle to avoid a recession. Interest rates are rising, making homes even more unobtainable.
Did I mention that the S&P 500 was off to the worst half-year in 52 years?
Oh, and the GDP is slumping.
And then a headline that makes no sense pops up; the S&P 500 is on track for the best month since 2020.
What are we to do as long-term diversified investors with all this drama surrounding us?
Stop looking at your investment accounts every day.
In a recent episode of the Earn & Invest podcast, Vitaliy Katsenelson suggests that investors only check on portfolio balances quarterly.
Katsenelson is the CEO of IMA — Investment Management Associates and author of the new book, Soul in the Game.
You might be like me and obsessively check your portfolio balance. Doing this exposes your emotions to the wild swings of the market. It also drives the urge to buy into the drama of the financial media.
“Don’t look at your portfolio daily. When you look at your portfolio daily, all you do is experience volatility and noise”, says Katsenelson.
He continues to state that the positive feeling of a gain will never make up for the pain you experience from a drop in portfolio value.
The more you expose yourself to the wild swings in the market, the more pain you bring to your life.
This pain can trigger your emotions and cause you to make unwise decisions, like selling in a down market or trying to time your entry to maximize gains.
Automate your investments and take advantage of human nature.
I recently wrote about the advantages of automating your investment contributions.
Thinking about something, like the bad news you read on CNBC, puts your mind in motion. However, only action will produce a result. Motion just keeps you spinning.
When your investment contributions are not automated, you have to take action to move the money. Any bad news in the financial world can quickly derail you and become an excuse not to take action.
Suddenly you are not investing, and the market is passing you by.
On the other hand, when your contributions are automated, you have to take action to stop or reduce them. The simple act of logging into your account to change the contribution is often a large enough barrier.
We love excuses to take no action.
Automation takes advantage of this human quality.
– Author James Clear writes about being in motion vs. taking action.
Instead of falling victim to laziness, use it to your advantage. Automation has no emotion; it just executes a script.
You are investing for the long haul, and this daily noise means very little when your time horizon is a decade or many away.
But this time is different.
I hear this one often. Certainly, the past is no guarantee of the future.
No one can predict the future.
Those talking heads that predict where stock prices will be at the end of this year have no clue.
No one knows.
Historically, markets rise over time, recessions happen, and inflationary periods occur.
Maybe this time is different.
But unless you believe our entire economic system will collapse, hope is on the horizon. If you feel collapse is imminent, there is more to worry about than your investment portfolio.
A negative mindset leads to poor decision-making. Strive for a realistic mindset instead.
This time might be your first experience in a bear market. Lots of investors are young, which is a good thing. Old people like me have been through a few times like these.
In hindsight, the contributions I made between 2008 and 2010 made a significant positive impact on my net worth. Those contributions only happened because I ignored the drama in the media and let my automation work in the background.
I trust that even if this time is different, there will be an upside in the future.
Realize that drama sells.
Even when the markets were sailing high and hitting records weekly, there were plenty of dramatic headlines in the news. We seem to love to click on the bad news more than the good.
I find it interesting that the good news story on NBC Nightly News gets the last minute of a 30-minute program. We may think we want good news, but it turns out that more people tune in for bad news.
You can help your financial well-being by looking at your portfolio less often. Quarterly seems like a stretch for me, but it sure would weed out a bunch of noise.
Setting up automation can be a huge help. Take advantage of your laziness. It takes some effort to change or cancel a contribution you have automated. Let automation continue to invest for you and keep the emotions of the day out of your long-term financial decisions.
Realize that no one knows what the future holds. That goes for the people predicting doom and gloom and those with polar opposite opinions. You have to find a place in your gut that makes you feel comfortable.
It doesn’t matter the year or the market condition; drama in the media will always be front and center. As a diversified long-term investor, it’s crucial to shut out that noise and stick to your plan.
Emotional investment decisions can be disastrous.
Zoom out, way out. Investing is for your lifetime, not today, this month, or even this year.
