Strategies to Mitigate Investor Anxiety
1. Limit consumption of sensationalized, negative news
Consuming sensationalized negative news can have a detrimental impact on your investment decisions by amplifying emotional triggers like fear and uncertainty. This heightened emotional state can lead you to make impulsive choices, such as selling off assets during a market downturn, which often results in missed opportunities or actual financial losses. Additionally, mainstream media often focuses on short-term events and anomalies, which can divert your attention away from your long-term investment strategy. It's important to remember that sensational headlines are designed to capture attention, not to provide nuanced financial advice. Limiting exposure to such news can help you maintain a balanced perspective and make more rational, well-informed investment decisions.
2. Understand that Volatility has Always been a Normal Part of the Stock Market
The S&P500, the most widely followed US stock index, has on average returned approximately 10% over time – most would agree a strong rate of return. That said, returns in the stock market are often uneven and volatile. Over the past 40 years, the S&P 500 has experienced approximately 20 corrections—defined as a drop of 10% or more from recent highs—as well as a few bear markets, where declines exceeded 20%. Despite its strong long-term annualized returns of around 10%, this benchmark index has shown it is not immune to volatility induced by economic downturns, geopolitical events, or market sentiment. For instance, during the financial crisis of 2008, the S&P 500 plummeted by more than 50%.
Many high-net-worth investors have specific risk considerations, such as nearing retirement age or lower risk tolerance given they have already amassed wealth through their business. For these investors, 100% exposure to the stock market could be detrimental. A balanced portfolio that includes not just stocks but also bonds and other asset classes like real estate, infrastructure and other alternative investments can offer risk diversification and a smoother return profile. Our team specializes in offering “pension-style” investment counsel that seeks to provide a smoother rate of return than what would be provided by only holding stocks in a portfolio
3. Review the Portfolio at Regular Intervals Such as once a Month or once a Quarter Rather than Looking at it Bounce Around Every Day
Constantly monitoring your portfolio can lead to emotional decision-making and short-term reactive behavior, which often run counter to a well-thought-out, long-term investment strategy. Daily market fluctuations are largely driven by events that may have no significant impact on the fundamental value of your investments, yet these daily changes can evoke emotions that lead to rash decisions. By checking your portfolio once a month or once a quarter, you can gain a more accurate understanding of your investment performance and make adjustments based on long-term trends rather than short-term noise. This less frequent review aligns better with the longer investment horizons that most financial goals require, allowing for a more disciplined and effective approach to wealth management. It also minimizes the stress and anxiety that often comes with daily market volatility, helping you stick to a sound long-term strategy.
4. Review Your Financial Plan that Stress Tests Market Downturns
A financial plan that includes stress tests for adverse market scenarios offers investors a valuable safety net, particularly during volatile periods. By simulating the potential impact of various negative conditions—such as market downturns, increased inflation, or rising interest rates—on a portfolio, stress tests give investors a clearer understanding of their exposure to risk and the resilience of their financial strategies. Knowing how your portfolio could behave under extreme circumstances can help you make informed adjustments before a crisis hits, better positioning you to preserve capital and seize opportunities when the market rebounds. The insights gained from these stress tests can provide an added layer of reassurance, allowing you to maintain your investment course even when faced with unsettling market news or fluctuations. Overall, stress testing serves as a prudent measure to enhance the robustness and flexibility of your financial plan, making it easier to navigate the ups and downs of market cycles.
5. Have a General Understanding of What you Own in your Portfolio and Why You Own it
Our team believes strongly in the value of providing updates and education on our investment strategy and holdings to clients. Having a basic understanding of what's in your portfolio can significantly help in mitigating anxiety during market downturns. If you're invested in a portfolio of established, blue-chip companies like Microsoft or Royal Bank, it's important to recognize that these are generally stable entities with solid track records. These companies often have diversified revenue streams and strong balance sheets, making them better positioned to weather economic storms compared to more speculative or volatile investments. Being aware of this can help you maintain perspective when you see prices drop, understanding that while short-term volatility is inevitable, the long-term prospects of quality holdings often remain intact. Therefore, having this foundational knowledge of your portfolio's contents can provide reassurance, encouraging you to stick with your long-term investment strategy rather than making impulsive decisions driven by temporary market conditions.
6. Contact Our Team to Discuss Concerns
If you're concerned about your portfolio, it's crucial to reach out to our team for guidance. Our seasoned professionals have navigated through some of the most challenging market conditions, including the 2008 financial crisis and the COVID-19 pandemic. We put special emphasis on ensuring that our clients don't make impulsive decisions that could adversely impact their portfolios due to anxiety or market uncertainties. Drawing on our extensive experience, we can provide tailored advice to help you weather volatile markets, all while keeping your long-term financial goals in focus. Remember, emotional decision-making in stressful times can lead to costly mistakes; our team is here to help you maintain a steady course and make informed choices, offering an added layer of reassurance and expertise.
