Long Term Investment Strategies | The Art of Doing Nothing

Many of us can relate to the fact that it is human nature to desire instant gratification. There is a thrill to making money quickly. We have a harder time recognizing that modern investors often have a tendency to concentrate heavily not only on the annual, quarterly, and monthly performance of their portfolios, but, for some, the daily or minute-by-minute returns.

This shift is driven by the technology we have at our fingertips today. The generations of investors that came before us did not have access to minute-by-minute updates of their investment accounts, so it was difficult, if not impossible, to fixate on the constant fluctuations.

This barrage of information can lead to what researchers call action bias in investing. This bias towards action means that even if research and historical data recommend staying the course and remaining invested, investors still prioritize acting because then they can say, “at least I tried.” Unfortunately, this desire intensifies after a loss or period of poor performance. During market downturn and volatility, it is vital to remember to stay the course - assuming the course you are staying with is a well-diversified, low-fee allocation that is suitable for your financial goals and risk tolerance.

Research by BlackRock further illustrates the potential benefit of staying invested. The graph on page one shows how a hypothetical investment of $100,000 would have been affected by missing various amounts of the top-performing days in the stock market over the last 20 years (2002-2021). Within these 20 years, 24 of the 25 worst trading days were within one month of the 25 best.¹

If you have established a well-diversified, low-fee, goal-appropriate portfolio allocation, this is the time where it is important to reflect on the sage advice of the beloved Winnie-the-Pooh, “Never underestimate the value of doing nothing.”

1. BlackRock: Staying calm amid market volatility, Feb 2022