In his new book “The Thin Green Line: The Money Secrets of the Super Wealthy,” New York Times Wealth Matters columnist Paul Sullivan comes across an interesting parallel to the irresistible urge to constantly check your investments: binge-eating.
While reading research examining client investing behaviour from Gregg Fisher and Philip Z. Maymin (published in the Journal of Wealth Management in 2011), he came across data showing that “knee-jerk reactions to what happened the day before cost an investor 4 percentage points of return each year,” he writes. “That’s not only a drag on the portfolio but is difficult to recover from over time.”
Research shows that many of the most successful investors leave their money alone, allowing it to weather the market’s ups and downs without interfering.
This impulse to buy and sell isn’t unlike the example used for the hypothesis of the Fisher-Maymin study: an earlier, 1978 study featuring a man so unable to control his binge-eating that he locked up his fridge at night and gave the key away.
“But he still woke up wanting to eat, unable to control the urge on his own,” Sullivan writes. “At some point the refrigerator would not be locked and he would binge again. Maymin made a similar observation about Fisher’s clients — and investors in general: some cannot help themselves in buying high and selling low.”
To combat the impulse to panic and call your adviser the minute there’s news in the market, Sullivan suggests picturing your invested funds — whether that’s retirement, college savings, or vacation savings — locked in a metaphorical refrigerator, safely away from your impulsive hands.
[The investor] could mentally lock his money there and not touch it. It would be set aside for a goal and be as unretrievable as the money he spent on lunch. This strategy could keep him from caring about the price of stocks day to day. Those movements would be irrelevant, and his chance of obtaining real wealth greater. It would make him less optimistic and in the long run wealthier.
You don’t have to imagine a fridge, specifically. It could be a safe, or a deserted island, or a similarly inaccessible spot. Just know that if you’re tempted to react to market news by adjusting your investments, the urge isn’t going to go away. It’s up to you to put a lock on your fridge, and keep from worrying about it every day.
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