How to shut out the noise

03 October 2019

3 minute read

In an environment of increasingly negative headlines, we provide three tips on how to stay focused on your long-term investment goals.

Who's it for? All investors

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice.

What you’ll learn:

  • What ‘noise’ means when it relates to your investments.
  • How to avoid being influenced by this noise.
  • Why it’s important to stay invested for the long term.

Turn on the TV, pick up a paper, look at the internet, or listen to the radio and it’s easy to feel bombarded by negative news.

Either the UK is heading for recession, the value of the pound has plummeted because of Brexit uncertainty, or the stock market has taken a tumble. All this negative noise can leave you feeling understandably worried about your investments which may in turn lead you to make erratic, or hasty investment decisions.

For example, in July alone £1.7bn was pulled out of UK-invested funds, much of which is attributed to the continued uncertainty around Brexit and the general political malaise the country has found itself in as a result.

Here, we explain why trying to tune out all the noise and focus on your long-term goals may be a better approach. It’s why, for example, Warren Buffett says he has chosen to live continuously in Omaha, Nebraska, as he claims that being far from Wall Street has helped him keep perspective.

The problem is, most of us can’t go off and live in Nebraska to escape the news. But what techniques can you adopt to stop yourself falling down, what one fund manager recently described “a rabbit hole of negativity”?

Three tips to help investors

We asked Dr Peter Brooks, Head of Behavioural Finance at Barclays, for three tips to help investors shut out the noise.

1. Keep a record of the reasons you invested

It’s a good idea to jot down the reasons you invested and to revisit these during turbulent times.

When a fund manager buys a company they are duty bound to write an investment note on the reasons it was added to their fund. That way, if things change over time for that company, they have a point of reference as to all the reasons they liked it in the first place.

Dr Brooks says: “Making a note of your reasons for investing can help cool any temptation to hastily change your plans. It allows you to refocus on the choices you made and assess whether the reasons for those still hold true.”

2. Set yourself goals

To help yourself to focus on the long-term, remember just why it is you are investing. Is your goal to live comfortably in retirement, or to save for your children’s education or to help them get on the property ladder? By keeping your focus and remembering just why you are investing, you can try and retrain your thinking so that you spend less time worrying about the short-term and instead concentrating on achieving longer-term success.

“Whenever you are thinking of changing your investments it is really useful to ask yourself ‘does this change help me meet my goal?’” says Dr Brooks. “If it doesn’t then this might be a signal that your decisions are being influenced by noise.”

3. Put your phone down

Of course we all need our phones for important things, like keeping in touch (and playing Candy Crush) but if you’ve got notifications set up to alert you every time something happens to a company or fund you hold, it’s easy to become addicted to continuously monitoring what’s going on.

So how can we resist the temptation to constantly check for updates so that we’re less tempted to make impulse reactions to negative news?

Brooks says: “I’ve heard a number of ways that investors have attempted to boost their willpower to stay invested. One common example was turning off alert notifications in apps, but one of my favourites was an investor who only considered investment decisions at the weekend. Since markets were closed they always had a chance to sleep on their decision before having the opportunity to do anything.”

Time in the market

Shutting out the noise can help prevent you from trying to time your long-term investments. The longer you’re prepared to stay invested, the greater the chance of your investments hopefully yielding positive returns, although of course there are no guarantees; no matter how long you hold investments they can still fall in value and you may get back less than you invested.

Time spent in the market also means you’ll have longer to benefit from compounding. To use a less technical term, think of this as a sort of snowball effect, whereby you earn returns on your returns over the long term. Given all the noise, this does take willpower, but by sticking to these three tips, the hope is you’ll be rewarded for your patience.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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