It is not a surprise that most people don’t want to watch something that generates mental anguish and will go to great lengths to avoid or alleviate it. If you think about your investments, it is painful when the stock market goes down but a happy occasion when it is rising.
According to an article by Michael Batnick of the Irrelevant Investor (www.theirrelevantinvestor.com), humans are programmed to be loss averse. The way to avoid this “pain of temporary loss” is to not look at our investments as frequently.
The idea is in the short-term, markets go up and down but the losses become less noticeable as time goes by – hence less pain. Think of the 2008/09 Great Recession. A few years after its low, the markets shot straight up eclipsing the losses with gains. This is an extreme example.
For a portfolio of 60% stocks and 40% bonds, a loss on is reflected in your portfolio on average:
- 46% of all daily returns
- 36% of all monthly returns
- 33% of all quarterly returns
- 26% of all yearly returns
It is easier said that done. Help yourself to not sell at an inopportune time because of the temporary pain of loss. Stay the course. Call you advisor if you have the urge to sell or just feel the need to talk.