How to Tune Out the Noise
Once again, we’re experiencing an upsurge in the noise around market volatility, increasing concerns about a trade war with China and future monetary policy. This can be overwhelming for the average investor and certainly hard to know when to be concerned and when to tune out the noise. Our market dashboard below shows that, while things may be noisy, there is no indication of an impending economic or market meltdown. We continue to follow the trade negotiations between the US and China and track whether they begins to tilt our market indicators.
Our Market Viewlooks at economic, valuation, technical and behavioral indicators to gauge the overall health of the market. Manufacturing and service provider activity measures economic health which is currently positive. Overall stock prices relative to future earnings measure valuation which are currently elevated and may be signaling some caution. Technical measures of short and medium-term momentum and market participation are excellent. Finally, our unique behavioral measure of expected market returns, based on investor preferences, are in normal ranges. This sort of mixed overall picture is fairly common and there is no cause for concern as long as the majority of indicators are in reasonable ranges. View click here.
Having a consistent view can help investors to know when to be concerned and when to tune out the noise. For long-term investors, a consistent view can provide a solid foundation and good perspective for reassurance and can help avoid overaction. The vast majority of the time the markets and economy are in relatively good shape and investors should stay on track with their long-term plans.
From the Behavioral Viewpoint
What is going on?
- We are loss averse and constantly on the lookout for potential threats. We want to believe we can identify and avoid every threat.
- Availability bias causes us to give media rhetoric and headlines more importance than they might otherwise deserve.
- We are subject to cascading and projection, where we build on events with speculation. “We will start a trade war, that will result in an economic meltdown, that will collapse the market and destroy my portfolio”.
- We are also subject to confirmation bias, and easily believe in things that support our existing point of view.
What can we do?
- Use a disciplined approach to monitor the market and economy that keeps your emotions in check.
- Stick to the same metrics month-to-month and year-to-year to provide a stable frame of reference.
- Have a financial plan and make investment decisions based on a disciplined investment process.
- Work with a professional financial advisor who can provide valuable experience and perspective to help you stay on track.
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Behavioral Viewpoints features new topics each month which are intended to help advisors and investors gain a deeper understanding of how behavior shapes the investing landscape.
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