The unfortunate truth is that it’s hard to completely remove your emotions from investing. Money and emotions have a strong connection — especially when you seem to be losing money. The sooner you learn to remove your emotions from investing, the sooner you can begin to make more logical investing decisions. Part of this is tuning out a lot of the short-term noise, such as daily stock price movements.
Long-term investors should be focused on just that: the long-term. Volatility in the stock market isn’t going anywhere, and paying too much attention to the daily price movements is one of the surest ways to stress yourself out.
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The S&P 500 (SNPINDEX: ^GSPC) is often used to determine how well the economy is performing as a whole. In the past 25 years, it’s experienced declines of over 40% during the dot-com bubble (the late ’90s), declines of over 50% during the Great Recession (2007-2009), declines of over 25% during the early stages of the COVID-19 pandemic (2020), and plenty of other bear markets and corrections along the way.
Yet, over that span, the S&P 500 is up over 350%.
Imagine the returns someone may have missed out on along the way because they panic-sold shares during rough times instead of realizing it’s an opportunity to double down, get some great stocks at a “discount,” and trust in the long-term value. Focusing too much on daily stock price movements can lead you to make short-term decisions that go against your long-term best interest.
Focusing on the long-term doesn’t mean being completely unaware of what’s happening, but it does mean being very selective with the information you use to make investing decisions. For example, it’s good to be aware of the earnings of the companies you’re investing in, but if you truly believe in the long-term potential, missed earnings for a quarter or so shouldn’t be a deal breaker.
For most investors, outside of making additional investments, there’s no real need to check your portfolio more than once a quarter. This is frequent enough to keep you knowledgable yet infrequent enough that you don’t become obsessive over how your stocks perform daily.
One of the cardinal sins of investing is trying to time the market, and even if you scream it from the mountaintops, investors will often be tempted to do so from time to time. I’m guilty of it, you’re probably guilty of it, and many other investors are guilty of it. More often than not, this happens during bear markets and market downturns. It seems logical, though: If stock prices are falling, why would you buy now instead of waiting until it’s cheaper later?
The one thing that’s held true in the stock market is that timing it consistently over the long term is a lowercase-F fool’s game because it’s virtually impossible to do, even for the most seasoned and professional investors. Nobody knows when stocks will hit their lowest point, and you may find yourself waiting for it to happen, only for your stocks to hit a run.
For investors who find themselves tempted to try to time the market, one of your best friends can be dollar-cost averaging. With dollar-cost averaging, you make regular investments at set intervals, regardless of stock prices at that time. It’s essentially how a 401(k) plan operates. No matter if we’re in a bear market, correction, recession, bull market, bubble, or whatever — every pay period, your contributions are invested.
Set your investment amount, set your schedule, and stick to it. It’s less stressful than constantly watching market fluctuations, and the consistency can pay off big in the long run.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
