I’m worried about the markets, should I be looking at wealth preservation?

Category: Financial Planning&Investment

Every investor has worried about the next market crash at some point.

But worrying too much might make you miss out on making more money. People call this being safe with money or “wealth preservation”, but it might be a myth over the long term.

Why would I lose money by worrying?

Equities, or shares, represent tiny portions of a company that investors can own. They have a long history of generating profits for people. However, many investors tend to get scared by short-term market fluctuations and decide to stay away. This is similar to refusing to attend a party for fear of tripping on the doorstep. One effect of this is investors getting lower returns than the funds they invest into actually make. Another is the prevalence of complex investments, which tend to underperform equities and incur hefty fees.

Why does this happen?

One major factor behind our perceptions of the financial market is the role of news and media. However, it’s important to note that by the time the media reports on a particular event, the market has already reacted, and the new information has been reflected in asset prices. Media content does not provide new information about the underlying value of assets. Therefore, consuming financial media doesn’t necessarily help you make better investment decisions, but it can make you more pessimistic due to the negative bias of the media and its asymmetric impact on people’s perceptions. Ultimately, it’s essential to approach financial news critically and focus on the long-term fundamentals of the market rather than short-term noise.[1]

Another study found a direct link between how often investors check their portfolios and the returns they miss out on.[2] Modern technology gives us access to our portfolios at our fingertips, meaning this effect will only become more pronounced.

When making investment decisions, your personal experiences with money can significantly influence your choices. If you have lost money in the past, it’s natural to be more cautious when making investment decisions. However, it’s important to remember that the stock market has ups and downs. When the market is down, it can be an excellent opportunity to invest and potentially make more money.

Is it so bad if I make a little less?

Lurking in the shadows is inflation, the slow but steady destruction of the true value of your money.

To beat inflation, you can generate higher returns than the inflation rate. Investing in global equities is one of the most effective ways to achieve this. Although there is a risk of market swings (volatility), historical evidence suggests that if you leave your investment untouched for the long term, your returns will grow and even multiply.

What can I do to reduce my chances of worrying too much?

Some steps you can take include:

  • Don’t look at your portfolio too much: The less you check, the less you worry.
  • Set It and Forget It: Delegate the management of your money so you don’t have to stress.
  • Learn a Little: Educate yourself to understand the dynamics of global markets.
  • Get Good Advice: Talk to a financial advisor who can provide an objective perspective untainted by personal past experiences or fears.
  • Go on a media diet: Don’t let scary headlines drive your money decisions.

Simply put, being too cautious is like refusing to swim because you might get wet. By educating yourself, getting good advice, and not letting fear drive you, you can make better money moves and enjoy the financial ride.

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[1] Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. The Journal of Finance, 62(3), 1139–1168.

[2] Larson, F., List, J., & Metcalfe, R. (2016). Can myopic loss aversion explain the equity premium puzzle? Evidence from a natural field experiment with professional traders (w22605; p. w22605). National Bureau of Economic Research.



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