Coronavirus Might Be Making You A Worse Investor, Here’s How
It’s safe to say the coronavirus epidemic has managed to completely disrupt economies around the world, so it’s no wonder those of us with investments are a little worried. Within a month the Dow Jones Industrial Average has dropped from its highest peak in decades back to 2016 rates, thanks to a March 16th crash that was the second-largest since 1896. Combine this with the fact that we have little idea on when international lockdowns will lift and it’s clear there’s some motivation for investment anxiety.
At a time like this, no one would blame you for checking on your investment portfolio; tt’s only natural to keep an eye on your pocket in times of crisis. That being said, obsessively checking your portfolio may actually be making you into a worse investor, not to mention unnecessarily elevating your anxiety. It encourages you to be more conservative or, possibly even worse, to act too rashly. Striking a balance between these extremes is the only way to sail your portfolio through these turbulent financial waters.
The Psychology of Overchecking
To know the dangers of investment management at a time like this, it helps to look a little at the psychology of investors. Firstly, how does frequently checking on your investments change your attitude towards them? Way back in 1995, an article in the Quarterly Journal of Economics found that the more frequently an investor checked their portfolio, the more likely they were to construct conservative portfolios which resulted in poorer performance over time.
Their findings were replicated in 2016 when the National Bureau of Economic Research found that investors who checked the performance of their portfolios every few hours made risker investments that yielded over 50% more profits compared to investors who checked their portfolios every few seconds.
And it’s not just investment that’s affected by overchecking. Saul Winter, a data analyst at Bigassignments and Essay writer, says that “being plugged into the 24-hour news cycle can be detrimental to your mental health. Studies at the University of Oregon have found that subjects who frequently check the news for updates on the coronavirus — infection statistics, symptoms, developments and so on — were twice as likely to report feeling anxious and afraid than those who didn’t, despite the fact they were reading the same information.”
While some investors might be hindering their performance by being too cautious, others run the risk of acting too brashly in times of crisis. I mentioned the catastrophic fall at the opening of the article, exactly the kind of thing that causes investors to jump out of windows — figuratively and literally. Any moment of great unpredictability in the markets is going to cause investors to think irrationally and encourage some to make fast judgments with their portfolios.
This is the flipside of overthinking our investments. Rudi Van Di Sarzio, a business blogger at Oxessays and Research paper writing service, reminds us that “if you are reacting to something emotionally in your portfolio, don’t use that to motivate a financial decision. The markets do not care how you’re feeling, and they are not motivated by whether you are excited or scared. Buying or selling because you are excited about one opportunity or afraid about a certain situation will only lead to bad decisions.”
The difference is between events and trends. Events like the crash on March 16th cause emotions, making them into flashpoints for economic activity. An event can be completely unpredictable, which triggers a fight or flight response that taps into our natural human instincts. However, events are only one small factor in the markets. What matters far more are trends, extended periods of rise or fall. Trends are easier to identify ahead of time and can help inform your investment actions.
Constantly checking your portfolio will heighten your awareness to events and dull your senses to trends. An uptick of a couple of points might inspire you to make a drastic decision, or a downtick of a similar size could push you to draw back your equities, even though those slight changes might be anomalies in a broader trend.
What To Do?
How do you avoid the pitfalls of overchecking? Pretty simple, really: check your portfolio less.
The first step is to be aware of how often you’re checking your portfolio. Whenever you have the urge to open your app, take a moment to think about why you’re doing it, and when was the last time you did. If you’re having trouble, set an app timer on your phone to see how much time you’re spending in your investment apps every day or week, see if it’s more or less than previously.
If you’ve found yourself over checking, Set yourself one time during the week in which you’re allowed to make adjustments. If that’s too hard, make it more difficult to access your portfolio quickly; uninstall the app on your phone, so you have to log in on your laptop, or set screentime timers to restrict your use.
This isn’t to say you should make no adjustments to your portfolio, far from it. There will always be decisions to be made on changing your investments, especially during a global economic crisis. The important thing, however, is to make these decisions with as clear a head as possible and to make them purposefully. Try deciding on changing an aspect of your portfolio before opening it up, that way you’re less likely to act based on emotions.
Take Your Time
Just because your checking your portfolio less, doesn’t make you any less of a dedicated investor. An ideal portfolio is one so strong you can have confidence it will go up, and so barely needs any attention.
It’s also worth saying that you will get through this. Everything is uncertain at the moment but rest safely in the knowledge that it’s uncertain for everyone, so you’re not alone. Don’t blame yourself for acting emotionally or missing an opportunity. There will always be a risk in investing and now is certainly no exception.
Above all, have confidence in yourself and your investments, make decisions rationally, and you will make it through these uncertain times.
Molly Crockett is a dedicated marketing blogger for Ukwritings and Education essay. There she focuses on how businesses can effectively protect themselves from industry advancement and legal threats. Molly always tries to make her work relevant to the current climate and is currently writing for Boomessays about how the coronavirus is affecting business and finance.