The news can unsettle us. Eliciting strong emotions – whether anxiety, outrage or making us sad – is how stories bubble to the top. Investment commentary can also be highly charged and it can cause investors to feel like they are doing something wrong or missing out.
The prominent narratives around investing are regularly told at full volume. So even if we are largely taking the right steps, noisy and often conflicting voices will frequently make us feel anxious and uncertain. Sometimes they can make us act in ways which are detrimental to us achieving our goals.
Volatile markets make us feel we should do something
We frequently get calls from investors when markets go down, asking about what to do, or should they take such and such action. Without offering specific advice, we caution that if you have a long-term goal and your risk level is designed to meet that goal, there should be no great reason to change your strategy due to short-term fluctuations – even if it feels troubling at the time.
It’s useful to be aware of how volatile markets can be. Even in years when they go up, they can experience profound losses during that 12-month period. The chart below, for example, shows how even in particularly strong years there have usually been falls, too – and conversely, even when there are falls, markets tend to rise more often than decline by the end of the year.
Source: Bloomberg, Netwealth
Prominent stories can cause further alarm
Sometimes the prominence of specific news items, not necessarily investment news, can cause investors to be anxious. Increasingly, for instance, there have been concerns about inflation. And while it may or may not become an issue, it is often framed in a way to worry consumers: prices could go up, your investments might be less effective.
This is one example of a story that can affect the wellbeing of investors, but the list is long. Consider any narrative around pension changes, about tax rises, the effect of Covid on the economy, long-established firms going bust and high-profile investment failures such as the Neil Woodford scandal. There is never a shortage of news stories that can potentially – directly or indirectly – be construed to have an impact on your investments.
Language and tone can have a negative effect, too. We previously explored the tendency of market commentators to pitch investing news using the rhetoric of gambling and this article in The Conversation (by professors of economics and narrative communication) examines “how the language used to describe investing in the stock market is skewed towards masculinity” – and may discourage female investors.
Adding to the melee of investment news anxiety is the fear of missing out, which can often be distressing – it’s easy to see why when you have reports of assets rising 600% in one week and similar stories of outsized investment successes.
Causes and effects
While market events and different news sources can cause concern, we may then act irrationally with our money due to the behavioural biases which affect us all. These include overconfidence, herd behaviour, availability bias, and equally as damaging, status quo bias which can discourage us from investing at all.
This hesitancy can have serious consequences in the long term because of the effects of even muted inflation, but the impact over the short term can be highly damaging, too. We highlighted how much investors could have missed out on by not investing in 2019, a shortfall that could have been repeated if you sold investments before they largely rebounded in 2020.
Putting negative news into perspective
To better understand the influences that affect our mindset, Canadian researchers conducted an experiment to assess the effects of various news stories. The research, highlighted in this BBC article, showed that people are naturally more drawn to negative news, a finding partly explained because we have “evolved to react quickly to potential threats. Bad news could be a signal that we need to change what we're doing to avoid danger.”
Further findings, such as the academic sources listed here and an in-depth evaluation here suggest that we are indeed prone to a negative bias, an attribute believed to be an innate part of our survival instinct.
Therefore, recognising that we often view the world through this lens could be crucial to help you combat anxiety when investing. You shouldn’t feel too bad if you gravitate towards gloomy news, as long as you don’t overreact to it.
Mostly, when there is a high-profile market event or unsettling news story, we urge clients that it is better to do nothing, rather than to act rashly. Of course, when pension limits change, new regulations become a reality or your own circumstances evolve, you should then consider how best to be prepared to build resilience for the future.
In these situations, or if you need more specific advice, we encourage you to get in touch.
Please note, the value of your investments can go down as well as up.