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Why Watching the Stock Market Can Make You Sick

YuckFaceI recently read a fascinating article on the correlation between market declines and admission rates to hospitals. The authors point out that almost instantaneously; the effects of a market decline affect mental health such as anxiety. In a nutshell, the authors describe that expectations about the future play a role in investor’s utility (happiness) today.

The research in this article can be beneficial on two fronts. One the one hand, the information can be beneficial to advisors in educating their clients that once proper assets allocation for a particular client is achieved there is little to be gained by logging into an account and watching the daily and even hourly fluctuations of the market.

And every asset class will fluctuate – which is why we diversify and allocate assets accordingly such as real estate, large cap stock, small cap stocks, commodities, bonds, etc. It’s important to note that at any given time, any of these asset classes will be both in and out of favor. The more someone watches the gyrations, the more likely their headed for the antacids – or in the case of the article, the hospital!

The other benefit is self-evident for the client; not watching the market can be beneficial to your health and I would argue your wealth. The reason why it’s beneficial for your health is there’s going to be a lot less stress and worry looking at your account on a daily basis. Unless you’re a day trader (proven to be especially useless) there’s little need to look at your account more than once per month – and less if you can stand to.

The reason it’s beneficial for your wealth is that by not watching the daily movements, there’s less of a chance you’re going to act on that worry and succumb to the loser’s game of trying to time and actively beat the market. Additionally, you may be tempted to stop investing in your IRA, 401(k), or other savings plan which is the last thing you want to do in a down market; in fact, consider investing more when the market drops.

Finally, this is where a financial planning professional can be worth their weight in gold (no; that is not a recommendation to buy the metal!). Working with a professional can help you better control your emotions by helping you think objectively which can be extremely difficult in a market downturn.

That being said you still need to do your homework. Make sure your professional isn’t in the same boat when markets fluctuate. If he or she is irrational and thinking emotionally, it’s going to be difficult if not impossible to be objective. And this is your money.

Be leery of professionals that claim to be market prognosticators or actively beat the market or use funds that do so. Numerous empirical studies show that this is almost an impossible feat. And again, this is your money. Also be cautions of “order takers” – meaning professionals that do whatever you ask – as if you were ordering from the drive through.

A good professional financial planner will challenge your requests (politely) if they feel it’s not in your best interest and can help prevent you from making mistake that can be hard to recover from. Case in point: think of all the “orders” that were placed to sell in 2008 when it’s the last thing investors should have done. Some folks experienced irreversible damage to their portfolios.

To quote a wonderful line from one of my favorite investment books, The Investment Answer, “There are those that don’t know, and those that don’t know they don’t know.”

The market is much bigger than all of us so it makes sense not to worry about what we can’t control.

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3 Comments

  1. AnneNo Gravatar says:

    The market is much bigger than all of us so it makes sense not to worry about what we can’t control.
    I agree with the statement; I also like the idea “the stock portfolio (Father’s Inheritance)is My Money; got to hold on to my (Father’s) Funds!!! So I thank you for your article…Anne usa…

  2. msolarimasNo Gravatar says:

    I couldn’t agree more. When we look at events in a short term scope, they can seem so impactful. But when we take a step back (and a deep breathe) things are never as bad as they seem. This holds true in financial planning and in life.

    1. sraskieNo Gravatar says:

      Spot on, Michael.

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