Millennials, 9 reasons you shouldn't check your investments more than once a quarter
Investors have been on a roller coaster ride over the last few years with high volatility in the stock markets. In March 2020, the covid-19 pandemic wreaked havoc on economies causing the local market (NZX 50) to plunge by -11% and the US market (Dow Jones Industrial Average) by -34%. Hopefully, you were not watching the numbers too closely and listening to the media’s relentless rhetoric which may have propelled you to panic and sell your equities in exchange for lower risk cash assets. We worked tirelessly with our clients to keep them in their seats and cut out the media ‘noise’ so they remained focused on their financial plan and delighted that none of our clients solidified a loss over this period. However, those who did sell lost out on astronomical gains over 2020 and 2021 never seen before in the stock markets with returns of 29% and 47% respectively.
This showcases the importance of having a financial adviser as a sounding board and the importance of trust and openness in that same relationship; trust in the financial plan, openness to share your concerns and anxieties and be vulnerable, trust that the expert fund manager will capitalise on opportunities – in times of uncertainty we all crave certainty. It takes bravery to prioritise rational planning or long-term thinking over shorter-term panic but this paramount to achieving your financial goals.
Now here we are in Q1 2023 and we’re still seeing market volatility since the peak Q4 2021 as markets continue to grapple with uncertainty due to global inflation, ongoing supply chain issues and rising debt costs. However, whilst we’re not out of the woods, this is familiar territory and history tells us that economic conditions do change, markets do adjust and evolve and we can anticipate long term positive expected returns.
Why does it make sense to ignore the ups and downs of the stock market?
1. Focus on what matters more, what you can control!
Life is busy and people have limited time and mental energy to spend thinking about money. With that in mind, most people are a lot better off focusing on areas of their life they can control like reducing debt, saving and/or investing more each month or spend your energy re-evaluating your financial and non-financial life plan and strategy.
2. Investing is a long-term game
Millennials are using investing apps to track portfolios performance daily. Check too often and you turn investing into a game running the risk of making sudden changes based on media headlines and fear. Millennial investors don’t need to keep an eye on daily market movements, the time horizon is long for retirement. Instead, find investments you truly believe in long-term and invest for a very long time, so you enjoy compounding, this is how you build wealth.
3. Don’t invite stress into your life
Checking your investments daily will invite stress and anxiety into your life. Daily, weekly or monthly market movements are not important to the end goal if your investment time horizon is decades into the future. Think big, long term and don’t lose sleep over the inevitable ebbs and flows of the market.
4. Your investment strategy shouldn't change on the fly
Correlate your investment strategy to what your financial or retirement goals are. The daily fluctuations don’t matter if you have sought guidance from a professional to help put this plan in place.
5. Avoid emotional errors
Markets dip 5% or more on average a few times a year which may evoke your emotions to tell you to sell on the darkest days. Emotions are strong feelings and if you listen to that feeling then all you are doing is locking in a loss or a lower value than you had just prior. The best investors look at their accounts once per quarter maximum. Set the plan, invest accordingly, and play the long game.
6. Information overload
No generation before has had exposure to so much information intended to empower people to make better, more informed decisions. However, when it comes to the stock market and other investments, the mass information gives way to confusion and conflicting information so people feel overwhelmed, unsure of themselves and more prone to experience FOMO (Fear of Missing Out). Stepping back from the daily information enables your long-term financial plan to gain clarity. Long-term buy-and-hold strategy is a tried-and-true method to build and protect wealth.
7. Millennial KiwiSaver investors have a long way to go to age 65
Assuming you have withdrawn your funds for your first home and your strategy is now saving for your retirement, chances are you still have 25 years or longer until retirement. Markets are going to move a lot in that time. If you've worked with a professional to create a customised long term investment plan, trust that it's going to work.
8. You’ve got time!
For Millennials, time is a major asset and especially true for individuals who have 15 years or longer before they plan to or need to access their money. With that in mind, checking your investments daily is like planting an oak tree and digging it up every few days to check on the roots. Engage a financial professional to help you understand your time horizon, your risk tolerance, your life goals and then let time do what it's supposed to do and focus on the other important things in your life.
9. You are unlikely to outperform the market!
According SPIVA, over a 15-year period, nearly 90% of US actively managed investment funds did not consistently beat the market. If investment pro’s cannot consistently outperform the market then the inconvenient truth is that individual investors are even less likely to win due to making poorly timed buy-and-sell decisions fueled by emotions. Looking at your investments more than quarterly will likely detract you from the big picture and make you susceptible to decisions you’ll regret later.
