Take away your new year stress

Tempted to keep checking the performance of your investment portfolio?

Well, if you want to protect your mental health during 2020, we suggest you don’t.

  • Even though the media make regular announcements about movements in the stock markets, the best thing to do is ignore them. For example, if you read a report about investing due to the “Boris Bounce”, it’s already too late to act because you’ve already missed it.
  • Even though your investment provider is legally obliged to send you a quarterly report, feel free to glance at it if you must, but we recommend you don’t take any action as a result.
  • Certain investment firms (those who have “discretionary permissions”) are legally obliged to tell their clients if a portfolio falls by 10% or more. If this ever happens, guess what, we advise you to ignore that too.

We think this communication overload is bad practice, because it’s too ‘in your face’ and therefore too much on your mind. It’s all thanks to the MiFID II rules. Some say these were “written by FCA junkies” – we couldn’t possibly comment.

If you check what’s going on just once every year, you’ll experience mild surprise or disappointment. But, the more you look, the more chance you have of becoming obsessed with the visual volatility of the markets. And this increases your stress levels.

As you may know – because we keep reinforcing the same message in different ways – the Plan 100 investment process is scientific, not emotional.

It’s not just us who says so. Here’s a snippet by Caroline Gowan writing for The Evidence Based Investor:

Many investors find it difficult to see the long-term wood for the short-term trees. Their focus tends to be on the effects of recent market conditions on their wealth and this affects their ability to make good decisions for the long-term success in meeting their lifetime purchasing power needs.
The advent of online accounts and investment tracking software has made this a lot worse and too many investors now look at their investments too frequently, getting highly excited as the markets rise and desperately disappointed as they fall. On any individual day, the chance of seeing a loss on your equity investments is around 50%. Even once a year you have around a 30%-40% chance or more that you will see a loss.
Mitigation strategy: Given the ratio of pain to gain, the longer the period between peeks the better! Look at the period-on-period change in the total value of your portfolio and ask yourself, or your adviser, whether you are still on track in relation to your plan. Do not worry about short-term changes and certainly don’t focus in on how one specific part of your portfolio has performed over a short or even medium-term timeframe. Two-steps forwards, one step back…

We understand why investors might be interested in following the markets (it is YOUR money after all). When the ‘dotcom bubble’ burst, we know the market declined for 2.5 years and didn’t reach its former peak for 7. In the ‘great financial crisis’ we know the S&P 500 Index lost over half its value in 18 months. We also know that 30%-40% drawdowns are not unusual when stock markets decline. And now, some people are worried about another collapse, because they think the market is currently too high.

But we also know that markets always grow over the long term. And the biggest effect on growth is low fees. And the safest thing to do is spread the risk by diversifying. So leave your money where it is. Relax, ignore all the hype, and have a happy new year!

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100