Investors often focus on what’s happening now, rather than looking at the bigger picture. While that might seem harmless, it could foster a short-term mindset, leading to financial decisions that don’t align with your goals.
After all, when you’re investing, you’re usually doing so with a long-term goal in mind. You might invest with the aim of building a fund to provide a comfortable retirement or a nest egg you could gift to your grandchildren when they reach adulthood.
As such, a big-picture view could help you assess whether you’re on track.
Psychology often plays a role in focusing on short-term market movements
Investors often fixate on current market movements for psychological reasons.
Current changes in the value of your investments can feel particularly urgent. While you might expect markets to recover in the long term, this cannot be guaranteed. This element of uncertainty may make some investors feel as though they need to react to the latest data right away.
In addition, the progress of an investment over decades can be difficult to measure.
For example, you may invest for your retirement, but it can be difficult to understand how your investments will translate into an income when you’re ready to stop working. In contrast, current market movements are easier to quantify, as you can see the value of your investments rise or fall.
On top of this, the fear of missing out (FOMO) may influence investor behaviour. Investors often want to choose the “right” investments that will deliver the highest returns. Yet it’s impossible to predict consistently how the value of markets or individual shares will change.
Short-term views could lead to reactive decision-making
On the surface, the tendency to focus on the short term doesn’t seem negative. However, it could mean you’re more likely to react to short-term market movements.
By making knee-jerk decisions, such as withdrawing investments when their value falls, you could miss out on the opportunity for long-term growth. For the average investor, sticking to an investment strategy during periods of volatility often makes sense.
As a result, overlooking the bigger picture could mean you make decisions that don’t align with your long-term plan, which could affect your ability to reach your goals.
Remember, focusing on the long term doesn’t reduce investment risk. It helps you see longer-term trends and could prevent you from making reactive decisions.
All investments carry some risk, and returns cannot be guaranteed. It’s important to follow an investment strategy that’s appropriate for your goals and wider financial circumstances. You should also keep in mind that you may get back less than you invested.
3 simple ways to refocus your view on the bigger picture
1. Refrain from checking your investment portfolio regularly
Checking the performance of your portfolio is important, but doing so too frequently could encourage a short-term approach.
If you regularly check the performance of your investments on your phone or read the news to find out how a specific company is doing, taking a step back could be beneficial. Limiting your exposure to short-term market movements could help you focus on longer-term trends when you carry out a review.
As your financial planner, we can schedule wider financial reviews that include assessing your investments. This could reduce the temptation to keep tabs on them.
2. Keep your investment goals in mind
As you’ll usually be investing for at least five years, keeping your long-term goal in mind can be a useful reminder to look at trends over years, rather than weeks or months.
A 5% fall in investment values over the short term can feel devastating. However, when you look at the bigger picture, you may find that the value of your investment portfolio has increased overall and that you’re still on track. This could ease the feeling that you must react to market movements.
3. Focus on what you can control
Numerous factors affect how investment markets move, making them impossible to predict consistently. You can’t influence how the market will move, so focus your attention on what you can control instead.
For example, you might consider how to diversify your investments when creating an investment strategy to help spread risk. Alternatively, you might assess how much you want to invest each month. We could help you evaluate your investment strategy and determine what suits your needs.
We could help you look at the bigger picture
If you find that you’re focusing on short-term results rather than looking at the wider performance of your investments, get in touch. As your financial adviser, we’re here to help you look at the bigger picture when making investment decisions.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
