Here’s some investment advice you probably never thought you would hear: Stop thinking about your investments. Stop watching the markets. Just step away. As one article put it, “Wash your hands. Ignore the markets. Don’t touch your face. And don’t touch your stocks.”
It’s strange but true that the best antidote to financial anxiety today may be to take a step back from the markets and stay the course. That’s because our brains are wired to be on the constant lookout for danger and to react quickly to any stimulus that threatens our security so frequently checking your portfolio is only going to provoke more anxiety.
Anxiety can help us leap out of the way of danger, but it is the enemy of rational decision-making. Past studies have shown that investors’ perception of risk increases as they check on their portfolios more frequently. Furthermore, investors who frequently check their portfolios may make emotional changes to their investment mix and potentially lead to poorer performance as compared to those who check infrequently.
Why? It’s all down to a phenomenon known as “myopic loss aversion,” a reaction that is the result of greater sensitivity to losses than gains and the propensity that a short-term perspective has to magnify that sensitivity.
When investors take a view of their investments that is strongly focused on avoiding loss in the short term, they tend to react too negatively to recent downturns at the expense of long-term benefits. In fact, recessions are fairly common occurrences, and the odds are that every generation is likely to live through their fair share. But each generation seems to have to learn anew that every downturn can only end with an upturn and, that over time, markets rise and economies recover.
Although recessions and unsettled markets can be difficult to face calmly – to use psychological language, they can be extremely triggering – they may also be moments of great opportunity. You may have to withstand scary headlines, significant market volatility, and additional declines along the way. Those who find the courage and conviction to stick to their long-term plans have often been rewarded as markets bounced back.
Remaining focused on the long term could better position you to look past the noise of today’s news and stick to your plan. The further you remove yourself from the inexplicable day-to-day gyrations of the market, the less risky you will perceive your investments to be and the less likely you'll be upset and tempted to tinker with your long-term plans.
Fortunately, the advice against this urge to tinker is a lot simpler than the studies that brought it to light: check your portfolio less often. That’s it. You’ll also suffer from less anxiety. And the best way to know for sure that it works? Try it.
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