Ignore Your Investments for Long Term Peace of Mind

by Hank

Are you addicted to watching the stock ticker on CNBC?  Or, do you constantly track your investments on the internet every ten minutes?  Everyday at 9:30am the alarm on my wristwatch goes crazy.  My coworkers all look at me like I am insane because of the odd hour for the alarm, but they have begun to notice that it is set to ring everyday….every weekday that is.  None have ever asked me what the alarm is for, but I’m waiting for the day one of them finally asks.  I’m not sure that I would want to tell them.  9:30am Eastern is of course when the U.S. stock market opens for business.  I’m addicted to watching the financial markets because I’m a finance guy. 


Addiction to watching the markets and especially watching the specific stocks and mutual funds that you own is extremely unwise.  For someone with a long time horizon, like me, constantly watching the rise and fall (or just plain fall in this economy) of the stock ticks is simply not healthy.  It will drive you nuts and make you a nervous wreck as the downturn in the economy continues to wreak havoc on your investments.  Academic studies have shown that investors sell their investments more than they normally would when they watch their stocks closely.  This can lead to selling on the downswing.


If you do not need to use the money that you’ve saved in your mutual funds, 401-k, Thrift Savings Plan, or other investment vehicles for the next five years or longer, do not get caught up in the excitement or fear of watching their prices move up and down.  One of my Soldiers asked me what I thought about the Dow Jones Industrial Average falling over 240 points in a single day last week.  I told him that I didn’t even care.  I didn’t have the heart to tell him that he should have been more worried about the S&P 500 index, which only fell 26 points on the day in question, instead of the almost worthless Dow. 


The Dow Jones Industrial Average is an index of the thirty largest companies in America and some of the most widely held as well.  The companies that make up the average have changed dramatically over its 112 year history, and only one company from the original group is still included in the index, General Electric (GE).  The Dow doesn’t really represent the US economy as a whole.  It really only represents a slim segment of America’s corporate landscape, the largest multinational industrial corporations.  There are so many different industries in the United States.  How can we possibly judge our all investments by just thirty?  The Standard and Poor’s (S&P) 500 index of the country’s top 500 firms is a much better yardstick on how the economy is doing at any given moment.


Back to watching the markets…The best thing that young and middle aged investors, who are decades away from retirement, can do is ignore the market all together.  Do not even look at the S&P 500 index, and certainly do not look at the Dow Jones.  Worrying about either of them or the direction stocks are heading in the short term is a waste of time.  It’s the long term that matters, and there is no better place to invest your money over the long term than stocks.  I actually love bear markets.  Don’t tell too many people, but I love recessions too.  This is a buyer’s market, and anyone who is several years away from full retirement should continue to invest in the stock market through good growth mutual funds.  Historically, the stock market has provided investors with a return of eight to ten percent over the long run.  The best thing going for us is the amount of time that we have left to invest.  I’m very thankful that I still have decades left to continue working and investing.  I’m buying stocks and mutual funds at their lowest levels in years.


I actually went almost an entire year without looking at the balance of my 401-k during this past year despite losing thousands of dollars on paper.  I just continued to invest money in the stock market consistently.  I have an investment strategy or a game plan so to speak.  I have a set amount of money being invested through dollar cost averaging and diversified between large cap growth, small to mid cap growth, and international mutual funds.  My investing is automatic without my slightest involvement through electronic transfers from my bank account.  That way there is less of a chance for me to mess it up or skimp on the amount I’m investing.  My investing is on autopilot, and yours should be too.  Do not worry about what the market does day to day.  Stick to your long term game plan and ignore your investments for long term peace of mind.

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