Does the speed of news availability affect your investment return?
With the recent market volatility investing with a buy and hold mindset may have gained some merit related to your investment return. The only way you will ever know if an investment decision (buy, sell, hold) was a good one is by looking back. When you do look back over time you gain a whole new perspective that wasn’t available when you had to make the initial decision. Keep reading to gain some perspective for how you should react to the news.
To do this I have highlighted the S&P 500 Index over various intervals of time. The difference we gain by analyzing varying lengths of time is really helpful. First, let’s simply look at the last month to view the volatility in the investment return I mentioned to begin with. Below you can see the difference that a day really can make. And so the decision you make, all depending on the day and the time of day, can really make an impact.
Next, I’m simply zooming out so you can see two additional lengths of time, one year and five years. This puts the size of the recent volatility into better perspective, making the recent volatility seem much smaller.
So does the increased availability of news affect your performance?
With the availability of news literally at our fingertips in 2018, we can place trades very quickly. When a person places a trade to sell something based on news that was just shared it is likely an emotional reaction: fear or excitement. In hitting that panic button to sell it will likely take some time to relieve those fears, causing hesitation to get back into the market. In the first chart showing the most recent volatility you can see how those days or weeks of hesitation can mean quite a difference in your return.
Take the financial crisis of 2007-2009 as another example.
People will say they lost a lot of money. But you only lose money if you sell on the way down or at the bottom, rather than hold your investments during that time of correction. If you’re reacting emotionally when investing you’ll have to be right twice to get back in or out at another good time.
Decades ago you had to wait until the next day or later in the day to hear a “breaking” news story. But today we know within seconds or minutes of a “breaking” news story thanks to TV, internet, and phones. This article shares how the internet has impacted investing. Social Media also speeds up this spread of news. It’s very common to see market overreaction to news initially and then as the next few days come people realize it was an overreaction.
I would dare to say that the wait we had to endure to hear of the breaking news probably saved many people from making poor reactionary investment decisions. And by the time they found out the correction or overreaction had already been explained back to normalcy. These reactions can be more common for individual investors who don’t have an advisor to provide prospective and take action for them, when needed. Here’s an article that explains further how news affects the world of finance.
If you find that you’ve been prone to overreacting and taking more investment action that’s hurt your performance, please reach out to see how we can help you. You need to have a plan or strategy that you follow. We can help you get started with both of these!