Rather than worrying about day-to-day price movements, focus here instead.
If you checked on the status of your investment portfolio today, don’t worry. You’re definitely not alone.
In fact, you may have looked at how your various investment holdings are faring multiple times by now, just to see how much you’ve gained or lost since yesterday.
It’s investing psychology in motion. Most of us do it, just because we can.
After all, it’s so easy these days using mobile apps or online platforms. But doing this really contradicts one of the core principles of successful investing.
Rather than being fixated on the day-to-day movements of financial markets, especially during times of heightened price volatility, what we should be doing is ignoring the constant noise around what markets are doing on a daily basis.
In the overall scheme of things, what happens today is largely irrelevant. Just like you’re unlikely to worry about changes to your superannuation balance every single day, there’s not a lot of point in worrying about daily changes to your investment balance either.
The power of compounding returns
Markets volatility is typically linked to short-term events, particularly economic conditions but sometimes geopolitical events.
Market downturns are also nothing new. They do happen, for a range of reasons.
Think back to 2020 when financial markets fell more than 30% over just a couple of weeks as investor panic set in over the spread of COVID-19.
It was a disturbing period for most investors, but within a short time markets had already started to rebound very strongly.
It’s an important lesson for all investors. Which is why Vanguard produces a chart every year showing the total investment returns from a range of different asset classes over a 30-year period.
Among other key events, the last 30 years includes both the 2007-08 Global Financial Crisis and the 2020 COVID-19 market crash.
The Vanguard Index Chart proves year after year that even a low initial investment balance will grow substantially over time when combined with compounding investment returns.
Sticking to a long-term investment plan, with diversification across a range of asset classes, allows you to grow your wealth even in the face of market crises and short-term volatility.
There’s nothing inherently wrong with checking your investments daily, weekly or monthly.
However, regardless of daily events, what’s most important is to stay focused on your investment goals and your overarching strategy to achieve them.
Investors who stay the course over time, riding through the regular ups and downs of the markets, have a much better chance of achieving investment success than those who take short-term positions and try to time when to buy and sell.
Speak to us for more on long-term investing.
Source: Vanguard June 2024
This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing
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