3 Resolutions for the Nervous Investor
The stock market has had a rocky start to 2022. Shedding points like some of us are trying to shed weight, the S&P 500 was down nearly 2% year-to-date, as of close on Friday, January 7. The spread of Omicron, potential Fed rate hikes, and tepid investor sentiment are all weighing on the market.
Some investors think that the market is due for a setback. In 2021, the S&P 500 rose 28.7% after gaining 18.4% in 2020 and 31.5% in 2019. After all this sun, a storm must be brewing, right?
However, big gains could keep coming. If we time travel back to the mid-90s, we might find beepers, boy bands, and boisterous stock market returns. 1995 saw the S&P 500 rise 37.5%, and over the next four years, the index would post annual returns above 20%. The market did eventually fall in 2000, but that crash came long after many analysts’ predictions.
What can we learn from the decade that gave us Friends? We can learn that the markets will do what the markets will do. No one can predict what’s coming next. Timing the market tends to result in losses more than gains, and when all is said and done, a disciplined investor is a successful investor.
With that said, investors can set some 2022 resolutions to help them stay focused on the long-term instead of getting caught up in speculative noise and short-term hiccups.
- Read more books. Read less news. Instead of scaring yourself with headlines, investors could get themselves a copy of The Little Book of Common Sense Investing or Strategic Value Investing. These and other books will help you hone your investment skills and develop your investment philosophy. Consuming less news could also help you be less reactionary to events that may not even impact your portfolio in the long run. Your doctor may also be happy with this resolution. While consuming news often spikes your stress levels, reading books can help you feel calmer, which may in-turn reduce your risk of serious illness.
- Resist the screen’s siren call. When we are anxious, overwhelmed, or bored, many of us turn to our phones and computers for support. We scroll through Facebook, Amazon, or even Robinhood or Fidelity. Just as obsessively checking your social media page isn’t healthy, obsessively checking your investment accounts can create unnecessary stress. This stress could cause you to react unhelpfully, such as when people divest their funds during a market drop and lose out on the gains that often come after. Just as you might replace news with books, consider deleting the Robinhood app on your phone. You could also add games to your computer or phone, such that if you pick up your devicefor a much-needed break, you could solve a puzzle instead of checking your investment returns. Replace these daily check-ins with quarterly, pre-scheduled portfolio reviews. These quarterly reviews will give you a better sense of how your investments are performing in the long-term.
- Invariably invest. Invest when it’s raining outside. Invest when the S&P 500 is down 1% during a day. Invest when analysts are predicting a stock market boom. Invest no matter what’s happening in the world. If you invest at the same time every month, your average investment costs are likely to be lower, and your savings could benefit from long-term, stock market growth. Setting up automatic transfers from your bank account to an investment account also ensures that your transient attitudes and emotions don’t impact your investment decisions.
Whatever you choose to do, remember that becoming a good investor involves building strong habits. Consider healthy eating. Eating one brownie on one Friday night isn’t a meaningful metric of your success. Instead, you have to consider how you eat overall, during an entire month or year. The same is true of investing, and just as with anything, building long-term investment habits requires discipline, restraint, and planning.
