How to climb the wall of worry
18 November 2016 | Topical insights
Commentary by Robin Bowerman, head of marketing and communications for Vanguard in Australia.
The smiling, gap-toothed face of Alfred E. Neuman has been on almost every cover of the US humour magazine Mad for the past 60 years or so – often with his carefree catch phrase: "What, me worry?"
Mr Neuman (the magazine's fictional mascot) personifies someone who doesn't worry about anything – no matter how much chaos and turmoil might be going on around him.
Investors may have something to learn from Mr Neuman's approach to life. After all, astute investors recognise that one of the biggest investment traps is to worry too much.
Australian economist and investment strategist Shane Oliver wrote recently that he received 54.2 million results when searching on the internet for the words "financial crisis 2016". His thesis is that investors can always find plenty to worry about, but that it's smart to develop strategies to "help manage the noise and turn down the worry list". He cautions investors to keep worries in perspective and to avoid checking on their balances too regularly.
Vanguard espouses much the same philosophy: Investors should be determined to overcome the "wall of worry" that can lead to emotionally driven decisions and distract them from achieving their long-term goals. Blocking out worrying news (within reason – one shouldn't ignore everything) can help one concentrate on core principles of sound investment practice: Hold an appropriately diversified, low-cost long-term portfolio, and don't overreact to inevitable short-term market volatility.
Fully appreciating the remarkable long-term power of compounding returns – that is, earning interest on investment returns as well as the original capital – can be one of the most effective worry-and-noise blockers. Understanding compounding can let you focus your mind on the rewards of long-term investing while helping to shut out day-to-day worries and distracting "noise" from the markets.
Over the past century, investors have had plenty to worry about, from the Great Depression to two world wars to the recent global financial crisis, and many other emergencies besides. Yet during this long, anxiety-ridden time, equity markets in Europe, the Americas, and the Asia-Pacific region have produced enviable long-term returns for investors who had patience and perspective.
A completely worry-free life is impossible, of course. But managing one's worries – and overcoming them to the best of one's ability – should be goals for every investor.
This article is designed for use by, and is directed only at, persons resident in the UK.
This article was produced by Vanguard Asset Management, Limited. It is for educational purposes only and is not a recommendation or solicitation to buy or sell investments.
The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.
Any projections should be regarded as hypothetical in nature and do not reflect or guarantee future results.
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Issued by Vanguard Asset Management, Ltd, which is authorised and regulated in the UK by the Financial Conduct Authority.