A white paper by Nationwide, a U. S based financial services company, says that investors today have a plethora of information at their fingertips, thanks to the rapid development of technology and internet.
But even with this proliferation of investment information it is not easy for individuals to find success in markets. Constantly reading news affecting the markets may lead investors to making irrational decisions, says the white paper.
Further, the white paper says that there are many causes for investor underperformance, but one of the primary reasons is frequent trading. “Investors buy and sell holdings in their portfolio constantlythe average holding period for a mutual fund in US is under two years, shorter than the average length of a market cycle. This frequent buying and selling at inappropriate times is mostly due to overreactions driven by headlines from the financial media, finds the white paper.
How news has influenced the S&P 500 Index
Investors sometimes get caught when they read the same news again and again and start worrying about their investments. For instance, some investors in India might be worried about how demonetization will affect Indias GDP growth, the impact of Fed rate hike and Donald Trumps victory.
We spoke to a few IFAs to understand whether over exposure to financial news has changed their clients investment decisions and how they counsel their clients when they are worried after reading a negative news.
Mumbai based advisor Deepak Khemani says, “I suggest them to focus on their goals and not to react to news. However, in the past, some of my clients have redeemed their investments after reading negative news reports. Nevertheless, I constantly educate them about the benefits of staying invested for the long term. Now, a majority of my clients dont pay much attention to news and stick to their goals.”
The white paper suggests that investors should try to understand the true role of the financial media and recognize how sensational reports of market events can push their emotional buttons. It suggests investors to tap their own willpower and avoid making emotionally charged decisions and stick to the investment plan they have established with their financial advisor.
Chennai based advisor D. Muthukrishnan says that he doesnt recommend his clients to constantly read financial news. It is good to be updated but the bombardment of financial news can sometimes influence investors to make irrational decisions. I keep educating my clients about the benefits of long term investing through my blog. In fact, my clients have taken the recent correction in market as an opportunity to invest.
Mumbai based advisor Kavitha Menon says, “Financial news has not impacted my clients as they do not follow it so religiously. My clients follow asset allocation and hence they havent panicked with the recent announcement of demonetization.
Let us know how has been your experience.
