Investors will often stress themselves out unnecessarily when trying to understand the stock market and how the headlines may relate to their portfolio.
With the recent volume of political news out of the U.S., I felt this would be a good opportunity to provide a commentary on current events and methods to reduce anxiety when it comes to your investments.
Listening to the media and constantly thinking about the news is a common cause for investors to worry. Economists' dire predictions or the TV's sensational comments on political issues, such as tapering, the fiscal cliff or the debt ceiling can lead to unnecessary grief.
Some events require attention while other announcements are simply noise. For example, since 1960, the U.S. Congress has raised the debt ceiling 78 times, although you wouldn't know it based on the current headlines. In fact, Congress has modified the debt limit 10 times since 2001; unfortunately, it seems to be a regular occurrence for the U.S. government.
Warren Buffett has famously commented that investors should "be fearful when others are greedy, and be greedy when others are fearful." Unfortunately, too often investors do the opposite of what they should when it comes to trading - selling when they should be buying and buying when they should be running for the hills.
You hire a portfolio manager or financial advisor to help you manage your investments because you trust their judgment. If you are working with a good team then it is best you listen to their advice and follow their recommendations instead of trying to micromanage your account. No one is able to predict whether the stock market will go higher or lower over the short-term, but it is likely that the market will move higher as the economy continues to improve. Focusing too closely on headline news or short-term returns while ignoring your investment strategy can also cause heightened stress.
Monitoring performance daily, weekly or even month to month is too short of a time frame to judge whether your strategy is working. Investors can expect to see normal swings of 10 per cent in the stock market and investors owning stocks will have to get used to some fluctuations in their portfolio and not worry too much if they see the value temporarily change by two or three per cent in any given month.
The goal is to participate when the market rallies and to minimize losses when the market is correcting through an active investment management approach. Adhering to these goals instead of trying to make money every day will set you ahead of the game.
Looking at your account online daily is a good way to cause unnecessary apprehension. Trust your investment team to be watching the markets on a daily basis. We recommend reviewing your portfolio monthly at most, but believe quarterly or every six months is best. What is important is that your investment team is monitoring markets daily and making changes as needed to your portfolio.
In general, the best way to avoid stress surrounding your investments is to reduce your exposure to the sheer volume of daily market noise.
Leave it up to the professionals to dig through the headlines. Trading decisions should be based on the news that is relevant to the stock market instead of reacting to every TV announcement. The goal is to remain calm during unnerving periods in the market and focus on information that matters. Trust your investment team to be watching the markets on a daily basis, enabling you to enjoy life.
Lori Pinkowski is a portfolio manager and senior vicepresident, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or [email protected]. You can also listen to her every Friday on CKNW at 5:35 p.m.
