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There’s a good chance that when you think of the term “lazy”, it carries negative connotations.
Though, when it comes to investing, taking a “lazy” approach (or, in this case, remaining steady, patient, and aligned with your long-term plan) could be one of the smarter decisions you can make.
It’s tempting to react to sudden market movements, after all, but a more passive strategy could potentially yield better results.
This is particularly relevant following the recent US election.
In September, we discussed what the US election could mean for your investments and finances. Now that it’s over and Donald Trump has secured victory, markets initially experienced a significant boost.
Indeed, Fidelity reports that the S&P 500 had its best week in almost a year following Trump’s victory, rising nearly 5% over five days. Meanwhile, Tesla also rose by around 30%, fuelled by speculation around potential tariffs on Chinese rivals.
While these positive market movements might tempt you to take action – such as buying into a “trending” company – reacting impulsively to changes could derail your progress towards your long-term goals.
Continue reading to discover why a “lazy” investing mindset could benefit you.
Overexcitement can lead to rash investment decisions, potentially scuppering long-term goals
Usually, we talk about why it’s so important to stay calm and avoid making emotion-led decisions when markets are volatile, as you might have read about in our previous article, which explains some of the factors that affected global markets in 2023.
The fear of losing money could prompt you to take rash actions, such as selling your investments or abandoning your carefully constructed plan.
Remember, it’s equally important to stay calm when markets are climbing, as a strong rally, such as the recent “Trump bump”, can result in overexcitement that could lead to unwise investment decisions.
For instance, you might feel the urge to invest a large portion of your available wealth in a rising company, such as Tesla, believing that you’ll benefit from continued growth – but this is no guarantee.
This could be fuelled by “herd mentality”, where you see your friends or peers investing and feel pressured to follow suit.
While their actions might seem wise at first glance, their goals, tolerance for risk, and overall financial situation could be incredibly different from yours.
Another common pitfall during periods of market upturn could be overconfidence. Seeing strong returns in the market might lead you to believe you can time your investments perfectly or that your choices will consistently perform well.
You may even attribute any past success to skill rather than luck, and, as a result, take on more risk than is appropriate for your circumstances.
These impulsive behaviours might also be exacerbated by positive headlines about rising companies or sectors, all of which could make you overemphasise recent events, ultimately skewing your judgment.
Despite the temptation, a “lazy” approach could be more likely to help you see consistent returns.
Sticking to your plan and investing consistently could yield the results you desire
Whether markets rise considerably or experience a period of downturn, it’s vital to trust in your long-term plan and invest consistently.
Say, for example, you panic when markets start to decline and attempt to cut your losses with the intent to “time the market”. In reality, historic data does not support this approach.
Indeed, Visual Capitalist reports that, over the last 20 years, 7 of the S&P 500’s 10 best-performing days occurred during a bear market – that is, when markets are in decline.
Many of the market’s best days actually occurred shortly after its worst, such as in 2020, when the second-best day came immediately after the year’s second-worst day.
If you sell investments due to rash decisions, you could miss out on these best-performing days, affecting the value of your portfolio.
This table, which shows the effects of missing some of the market’s best days based on a hypothetical $10,000 investment in the S&P 500 index between 1 January 2003 and 30 December 2022, furthers this point.
Source: Visual Capitalist
As you can see, your original $10,000 investment would have been worth more than $60,000 if you’d remained invested through this period, despite significant downturns along the way caused by the 2008 financial crisis and the Covid-19 pandemic.
However, if you’d missed just the 10 best days in the market over that period, your returns would be more than $35,000 less.
Ultimately, interactive investor reports that attempting to time the market could cost UK investors 7% of their annual returns when compared to a “buy-and-hold” strategy.
Even if markets are climbing and you feel the need to stray from your plan due to overexcitement, the data above shows that emotion-led decisions have no place in investing.
How to keep a level head amid rising markets
Avoiding the pitfalls of emotion-led investing can be challenging, but a thoughtful and measured approach could help you keep a level head when markets rise.
Scrutinise any decisions you make
Before making any investment decisions, it’s worth playing devil’s advocate and challenging your own reasoning.
Ask yourself why you’re taking action and whether it realistically aligns with your financial goals and risk tolerance.
You may want to imagine you’re advising someone else – would you approve of the reasoning they’re using? This could help you take a step back from your impulses, view the situation from an outside perspective, and approach decisions with more objectivity.
Take your time
When markets are rising, you may experience a sense of urgency to act quickly and capitalise on the gains. But, rushing to make decisions could simply increase your chances of overlooking vital information or relying on gut feelings rather than facts.
Conversely, taking a step back and evaluating your options could help you determine whether an action would truly benefit you in the long run.
Remember that patience can potentially prevent you from making decisions based on short-term trends, rather than your bespoke financial plan.
Work with a professional
Sometimes, the most effective way to navigate the highs and lows of the market is by talking with a trusted professional.
A financial planner could offer an objective perspective, helping you evaluate whether a potential change aligns with your goals.
A planner will work with you to create a tailor-made plan based on your financial circumstances and long-term aspirations. With this firm strategy in place, you may be less likely to be swayed by market noise or emotional biases.
Get in touch
We could help you be a “lazy investor” and stick to your plan in the event of sudden market upswings or periods of downturn alike.
Email info@athertonyork.co.uk or call us on 0208 882 2979 to find out more.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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