If we asked you to hold your breath or stop blinking, how long could you do it? A minute, maybe two?
Now, what if we asked how long you could go without being moved by the latest headline news? Impeachment unrest, Hong Kong protests, Brexit stress, climate change, inverted bond yields, the price of oil … you name it. There’s plenty to think about these days.
The same old message …
We encourage you to consider how current events may shape the actions you’d like to take in your larger life.
But topsy-turvy yield curves and all, nothing we’ve seen lately has altered our strategic recommendations on how to pursue your personal investment goals while managing the risks involved.
As a client of MFP, you may be blinking back tears of boredom by now, for every time we’ve repeated how important it is to stick with your globally diversified investment portfolio.
Still, even though you know you should try to remain calm in the face of breaking news, it’s also worth remembering that doing so is not easy. It is not simply a matter of mind over matter. In fact, your mind is the very organ most likely to trick you into losing your resolve.
What’s going on in your brain
You may assume taking deep breaths for survival, versus doing so to maintain your investment stamina, are two entirely different challenges. After all, the first one involves suppressing a life-preserving reflex. The second one involves … actually, the exact same thing. Whenever you watch markets digest a never-ending feed of the latest, not-always-greatest news, similar reflexes are happening deep down in your head.
In his excellent book, “The Behavioral Investor,” psychologist Daniel Crosby explains:
“Emotional centres of the brain that helped guide primitive behaviour like avoiding attack are now shown by brain scans to be involved in processing information about financial risks. These brain areas are found in mammals the world over and are blunt instruments designed for quick reaction, not precise thinking.”
Red equals fear
Case in point. A recent study found, when negative returns were presented in red instead of in a neutral black (e.g., –12.8 instead of –12.8), study participants were significantly more likely to be more pessimistic about what future markets had in store. Two exceptions included participants who were colour blind, or from cultures where red is associated with good fortune!
Unless you think colour alone should drive your investment decisions, remember that your existing, well-reasoned portfolio remains your best friend for helping your big, biased brain look past the news of the day.
To keep your investments intact and on course … just keep breathing. And, as always, let us know how we can help.