A Fool Proof Way To Manage Investment Volatility

Owen Winkelmolen

Fee-for-service financial planner and founder of PlanEasy.ca

With investments values moving up and down 5% to 10% per day this investment volatility can feel like a roller coaster both financially and emotionally. If you’ve been watching your investment portfolio day-to-day you may be feeling a bit nauseated by now.

Thankfully there is a fool proof way to manage this investment volatility, just don’t look.

Not looking at your investment portfolio is simpler said then done of course, but it’s the best way to manage investment volatility.

It’s been proven that we put more weight on negative experiences than positive experiences. We feel the impact of negatives more than we feel positives.

Even when they’re the same size, a loss feels worse than a gain. Losing $50 feels worse than gaining $50.

So with markets jumping up and down 5-10% per day this can lead to some VERY negative emotions. The positives just don’t out weight the negatives and we end up feeling worse and worse with each rise and fall.

But not looking at your investment portfolio can be surprisingly hard to do. So what can the average investor do to help themselves feel better during a market correction? What strategies can they use to avoid looking at their investment portfolio? What routines can they implement?

This post looks at a few different ways to help you manage the emotional impact of investment volatility.



There’s No Point Checking A Highly Diversified Index Portfolio

It’s easier than ever to create a low-cost, highly diversified investment portfolio. Index investing allows an investor to purchase all companies within an index, all at once, at a very low cost. Index investing makes it very easy to achieve a high level of diversification.

The great thing about a highly diversified index portfolio is that there’s nothing you can do during periods of high volatility. You’re essentially off the hook. It’s not possible to trade individual companies within your portfolio so there’s less need to keep track of individual investments.

Warren Buffett says he chooses investments that he can hold for 10+ years, even if the stock market were to shut down. You can take a similar approach with your investment portfolio. Choose a highly diversified mix of equities (Canadian, US, Global) as well as fixed income. That way during periods of high volatility you can simply ignore your portfolio until things quiet down.



Automate Investment Contributions And Rebalancing

Index investing helps buts it’s even easier to avoid checking your investment portfolio if you’ve chosen to use an investment option that rebalances for you and is low-cost.

Two very common options are a robo-advisor or an ‘all-in-one’ ETF.

This ‘hands off’ approach is an amazing advantage during periods of high volatility because individual investors don’t need to do anything except continue making regular contributions.




Minimize The Temptation To Look At Your Portfolio

Even if you have a low-cost diversified portfolio, one that rebalances for you, this still doesn’t minimize the overwhelming temptation to look.

Like rubberneckers on the highway, the urge to look at a catastrophe seems to a natural human reaction. It can be hard to resist the temptation to log into your investment account and survey the damage of a recent market dip. Most of us know this is the wrong thing to do, but we just can’t help ourselves.

To minimize this urge requires some strategies and routines.

Creating a financial routine is one step you can take to reduce the temptation to check your investment portfolio. Set a specific day of the month or a specific time of the year to check your investment portfolio. Mark it on the calendar and wait for that specific day (in my house we make it a mini-event with take-out and a bottle of wine). With the right investment portfolio you can go months (or even years) before checking your investments. The longer your wait between checking the higher the chance your investments have grown.

Another step you can take is to make it harder to check your portfolio. Get rid of data aggregators like Mint. This will make it harder to check the status of your portfolio. Also consider removing brokerage and robo-advisor apps from your phone. Those robo-advisor apps are slick and convenient until you realize you’re logging in 2-3 times per week (or even 2-3 times per day!) to check your investments.

Make it harder to check your investment portfolio and it will become easier to ignore the ups and downs of the market.



Manage Investment Volatility: Just Look Away

Sometimes managing investment volatility can be as simple as looking the other way. Of course you have to have the right things in place. A diversified portfolio, automatic rebalancing (or rules to help trigger rebalancing), plus a strong routine to help manage your finances.

Without these things in place the temptation to check your investment portfolio can be overwhelming. But with the right investment portfolio you can go months (or even years) without checking on your investments.

Get off that emotional rollercoaster, make yourself feel better, check your portfolio less often.



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Owen Winkelmolen

Financial planner, personal finance geek and founder of PlanEasy.

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...


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