Is ignorance bliss?
As odd as it might sound, some people believe that forgetting about an investment can be a way to get good investment performance.
This is because even if an investor intends to buy shares or funds to hold for the long-term as a long-term investment, the temptation can creep in to watch prices closely – and to panic and sell if they slump.
“Buy and forget”, on the other hand, eliminates the panic selling.
A post on Business Insider tells how one firm found the accounts that had done best were held by investors who had forgotten they owned them.
Likewise, Marketwatch tells how the information age may contribute as there is an instant response app for so many things. Instead of constant monitoring through an app, it encourages some investors to take a “nap”, a break to stop and think. It says “if investors gain a false sense of power based on bits of information — and studies show they do — then more information, leading to more trading at frenetic market times is a bad thing”.
“Don’t just do something. Stand there.”
Economist and writer Chris Dillow blogged for eZonomics that there is “a good case for responding to share market moves by doing nothing”.
Called the Hitchcock principle, after advice to an actress from the great film director Alfred Hitchcock, Dillow writes that the impulse can be to panic sell – and that the drive to follow the herd (and sell because others are) can compound it.
It is difficult to not flinch in the face of falling prices, he writes, particularly due to the evolutionary response to fly from danger.
Organise your money before investing
No matter how you plan to manage your investments, it is important to organise your budget first and build an emergency savings buffer to use when circumstances take a turn for the worse. The 60 second video When to start investing explains more.