Turn down the noise, turn up financial confidence

If there’s one thing that investors learned last year it’s the importance of ‘turning down the noise’ of the daily news cycle – and focus on their long-term investment strategy.

So, here are some insights and practical tips to help you stay informed without feeling overwhelmed by it all, or worse, being pulled into an emotional decision.

Beat the information overload: noise vs signal

We live in the Information Age, where facts, opinions and rumours on almost any subject are at our fingertips, constantly scrolling before our eyes.

Many times, we don’t even read the full article, but rather jump from one headline to another feeling we’re gaining knowledge in the process. According to research, for every 10 people who read a headline on social media, only two will read the rest of the content⁽¹⁾.

One reason is probably our shorter attention span: a study from Microsoft Corp.⁽²⁾ found that the human attention span dropped from 12 seconds in 2000 to just eight seconds in the digital age.

Another reason might be the information overload itself: with so much to read everywhere, it’s hard to find the time to get in-depth analysis on everything. For the most part, we have no way of weighing information, and no time to do so.

And that’s why, when it comes to investing, it’s important to learn to turn down the noise and listen to the ‘signal’ instead:

Signal is the meaningful information: what you want to understand and what can actually help you make an informed decision. We’ll expand on this shortly.

Everything else is noise: irrelevant or misleading information that can stir your investment strategy in the wrong direction.

Now that you know the difference in principle, the question is…

What does noise look like?

In his book ‘Before Happiness’⁽³⁾, award-winning educator Shawn Achor classifies noise into four categories:

Unusable: If an event has no effect on your long-term strategy, then there’s no reason to obsess about it. Current events may (or may not) affect your investment portfolio in the short term, but they’re often just ‘noise’ from a long-term standpoint.

Untimely: This is information that cannot be acted upon right now, and can potentially change by the time you’re going to use it. It’s one of the key reasons for not checking your investments too frequently, if you’re a long-term investor.
Hypothetical: The media is full of this kind of noise, and expert predictions are a typical example. Remember: no one knows what the markets will do next, no matter how experienced they are.
Distracting: If it’s distracting you from your long-term investment goals, it’s almost certainly noise.

The risk is to let emotions like fear and greed take over your decision-making. In the whirlwind of news, opinions and ‘clickbait’ material, the ability of filtering out what’s important and what’s a gimmick is an invaluable skill for any long-term investor. Read on for seven quick tips.

Seven ways to turn down the noise

1. Keep your ‘negativity bias’ in check

Human brains are wired to pay more attention to bad news. “The mind is like Velcro for negative experiences and Teflon for positive ones,” as a 2010 article published by the University of California, Berkeley(4) put it. This is called a Negativity Bias, and we have inherited it from our cave-dwelling ancestors. The key thing is to break the pattern, by standing your ground and sticking to your long-term investment strategy.

2. Put your concerns into context

After several happy years of relative peace and quiet, the world seems to be going through an immense shift. Words like ‘crisis’, ‘downturn’ and ‘pandemic’ have become part of our daily vocabulary, and not a day goes by that we don’t hear about an imminent catastrophe.

So, it can be easy to forget that markets have always changed directions frequently and unexpectedly. It’s their nature. For example, as we pointed out in a recent article, there have been 26 ‘bear markets’ in the US since 1928 – but there have also been 27 ‘bull markets’. Context is everything: the timeframe you need to consider is not today or the next six months, but your whole investment horizon.

3. Understand that markets are forward-looking

Sharemarkets are forward-looking. This means they are largely driven by what investors think will happen in the future. Usually, when economic data and profits are already very weak, the market has already factored that in. And the same goes when economic data is really strong.

Importantly, investment markets react to surprises (good and bad) with volatility. When a company produces better than expected results, the value of its shares will often increase. This explains why shares increase even when the rest of the economy is underperforming. And that’s also why timing the markets is nearly impossible: no one really knows what ‘surprises’ are in store.

4. Choose your sources wisely

Instead of diving into all the information head-on, you may want to select a handful of reputable sources to follow. It will help you stay in the know while building your financial nous. Our Education Centre is a great place to start. Plus, you can check out some of the great podcasts on this list: they can be a perfect companion for those lengthy commutes to work or while doing chores around the house. And if you’re looking for good financial books, check out this article we published right before the holiday break: as summer ends, summer reads are good all year long.

5. Seek guidance from a trusted financial adviser

With so many factors to consider, it helps to have an expert at the ready for all your questions. That’s what financial advisers do: they have their finger on the pulse of the market, to provide their clients with well-researched, up-to-date insights and advice. It’s key to work with someone that you trust and can be in your corner for the long-haul.

6. Don’t check your investments too often

Seeing the value of your investments drop ‘in real time’ can trigger your loss aversion and lead to impulsive decisions. But if retirement is still more than five-to-10 years away, there’s probably no reason to check your investments more often than once a year. This way, you can still keep track of your progress without the distraction of short-term market movements.

7. See opportunity where others see bad news

While it may sound counterintuitive, periods of market turbulence can bring opportunities for investors with well-diversified investment portfolios. For more on this, check out our article ‘Why diversification is so important right now’. And remember: hiding your money from investment risk is impossible. What you can do is turn down the noise and ensure portfolio resilience through diversification. Preparation, not prediction, is the key.

Let’s create your diversified KiwiSaver portfolio

For our kōura personalised portfolios, we use more than 200 proven portfolio strategies, based on a number of global investment and domestic KiwiSaver scheme models. And getting your personalised portfolio only takes a few minutes.

Use our digital advice tool to check what your KiwiSaver plan is on track to give you, and the recommended portfolio composition for your risk profile, needs and goals.

1. Moz.com – 5 Data Insights into the Headlines Readers Click

2. Microsoft Canada Consumer Insights, Attention spans

3. Shawn Achor, Before Happiness: The 5 Hidden Keys to Achieving Success, Spreading Happiness, and Sustaining Positive Change

4. Greatergood.berkeley.edu - The Neuroscience of Happiness

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

Turn down the noise, turn up financial confidence

Turn down the noise, turn up financial confidence

If there’s one thing that investors learned last year it’s the importance of ‘turning down the noise’ of the daily news cycle – and focus on their long-term investment strategy.