Tips for tuning out the market noise and keeping your emotions in check

Emotions are often an investor’s worst enemy. Standing firm in the face of market volatility can be difficult. Vanguard investing experts Kahlilah Dowe and Don Bennyhoff discuss tips for tuning out the market noise and keeping your emotions in check. Watch the full replay »

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Notes:
  • For more information about Vanguard funds, visit vanguard.com, or call 877-662-7447, to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • Diversification does not ensure a profit or protect against a loss.
  • This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
  • Advisory services are provided by Vanguard Advisers, Inc. (VAI), and registered investment advisor.
© 2016 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.


TRANSCRIPT

Matt Benchener: Alright, so we’ll go to another question. This is from Sachine in Fairport. How does one keep emotions out of investing? So that’s, yes, I would add an addendum to that. Can you keep emotions out of investing or is it more about dealing with them, regulating them?

Kahlilah Dowe: I think it’s a combination of the two, so it can be tough because we’re dealing with life savings here. So I think it’s just inherently emotional because of the sensitivity of that. But I think it’s possible to minimize the impact of it. I think it’s a lot easier to do it upfront when you’re selecting your investments and structuring your portfolio than it is to do it on the back end. And so the way I would approach that is when you think about how much you’re going to have in stocks versus bonds, which investments you’re going to hold, you really have to know how each of your investments fit into your portfolio. Why do I have X amount in large caps or X amount in international exposure? You really have to know that up front so that when the market gets very volatile, you don’t start to question whether or not you have solid investments based on performance. So that’s the first thing I would say, know why you hold the investments that you hold. Definitely keep your long-term goals in mind. And I can’t stress that enough because oftentimes if we look at what’s happening in the market over the short term, it almost looks as though it’s working against us in terms of the long-term goals. But that’s not an indicator of what you can expect out of your portfolio down the line. So I would say those two things, and then, finally, I think a lot of the emotions that we’re seeing right now are due to, again, just those headlines. You hear different things about what could happen in the international market or in the U.S. market or with interest rates, and you kind of put all of that together, and many investors feel inclined to do something. You know, they don’t always know what to do, but they feel as though they need to do something. And so one of the things I tell the investors whom I work with is that those things may or may not be true, but the key is really how does it relate to how I’m invested? And so if you hear that, you know, I’m going to say international because we just hear so much about it, but if you hear that international stocks are not going to perform well over any given period of time, but you only have, let’s say, 15% of your portfolio in international stocks, then the question becomes do you really need to do something in advance of that? So I would say, just to keep in perspective, if you’re going to listen to the headlines, and they can be difficult to avoid, just think about how does that really impact you personally.

Matt Benchener: You know, it’s interesting, Vanguard has done some research on the value of advisors in general. And one of the key things that’s come out—I’m sure you experienced this, Don, you work with advisors external to Vanguard quite a bit—is that advisors actually add a lot of value as behavioral and emotional coaches, which when I first read that surprised me a little bit, but in helping investors deal with the emotion that comes with investing.

Kahlilah Dowe: Right, and I think that’s the huge value in having an advisor if you have one to kind of, one, be that sounding board where you’re hearing things, you’re not quite sure what to do but then also to make sure that you’re not doing the wrong thing based on what you’re hearing. And I think the important thing is that, you know, advisors, while we may not make changes constantly to reflect what’s happening in the market, the most important thing is that when we make changes to your portfolio, it truly is to make sure that it aligns with your goals and your investment objectives. And so I think that’s really the most important thing whether you’re managing the portfolio on your own or if you’re using an advisor.

Don Bennyhoff: And, Matt, if I could jump in because this is a really important part of investing, right? We invest for a purpose. We have goals and objectives that are really important to us, and that’s a big part of where we get emotional. I have found that most clients are a bit more emotional or have a little more trouble with volatility where they haven’t already laid out a very clear financial plan. A lot of times people begin investing by sort of collecting funds with really, as we’ve discussed, they’re without any purpose or really knowledge of why they’re doing it. So if you start with a financial plan that when you know it’s all about you and your objectives and your goals and how much comfort you have with risk, that’s about you and we talk about the headlines and the media. The headlines that really matter are about an individual’s headlines—I had a baby, I’m looking to buy a new house, I’m planning to retire early, and I’d like to get there. Those are the headlines that need to be paid attention to, and those show up in the financial plan. We don’t need to respond to market volatility and the headlines because there will always be headlines. When you build a financial plan, you don’t build a part of the financial plan that incorporates expected headlines. What we do is we say, “We know that things aren’t going to work necessarily according to plan, so we diversify and we use asset allocation. Those are our risk management tools.” As also we talked about, it’s the value of an advisor. If you don’t have the ability or interest in building a financial plan or you don’t have the discipline to stick with it, then maybe using an advisor or an advisory service can help with that and take the emotions out of it.

Important information For more information about Vanguard funds, visit vanguard.com, or call 877-662-7447, to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.All investing is subject to risk, including the possible loss of the money you invest. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss. This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation. Advisory services are provided by Vanguard Advisers, Inc. (VAI), and registered investment advisor. © 2016 The Vanguard Group Inc. All rights reserved. Vanguard Marketing Corporation, Distributor.