In this fast-paced digital era, your smartphone is likely always close by, serving as a gateway to your investment account(s). While easy access to your portfolio has its advantages, it can also lead to impulsive and potentially damaging investment behavior.
Even the most successful, rational investors sometimes experience feelings of anxiety when they encounter market volatility like what we’re experiencing these days.
While it can be tempting to make a knee-jerk trading decision when emotions are high, well-designed mobile investment applications offer features that inspire healthier investment choices that support a long-term, stay-the-course strategy aligned with your goals and risk tolerance.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here are four ways that digital tools and features can help balance emotion and logic in your investment decisions:
No. 1: Portfolio reviews over time
While staying the course is generally the best all-weather approach, emotions can undoubtedly influence your investment approach. Emotions like optimism for your family's future or pride in your accomplishments can propel you to invest in the first place.
When the market turns in your favor, it can fill you with confidence. But when it goes down, it can prompt unhealthy and potentially damaging reactions.
Many investment apps allow investors to look back at their portfolio’s performance over periods of time — often helping to show that avoiding an impulsive reaction to market volatility has been a long-term net-positive for their performance.
This can offer valuable perspective for investors, helping to reframe emotions and reinforce the benefits of adhering to a well-planned investment strategy.
This is consistent with Vanguard's goals-based investment philosophy, which advocates for maintaining long-term discipline and diversification.
However, this does not necessarily ensure a profit or protect against loss, as all investing is subject to risk. That’s why we offer Portfolio Watch, a tool in our mobile app that helps you understand your portfolio composition and mix at a granular level by comparing it with a target portfolio, using historical data, to show how a hypothetical portfolio would’ve performed over time.
By reflecting on how portfolios performed during previous periods, investors can see the benefits of their disciplined approach and reinforce their commitment to their long-term goals. Just keep in mind that past performance is not a guarantee of future returns.
No. 2: Digital thought leadership libraries
Many investment apps serve not just as a tool for reviewing your portfolio but as a portal to a comprehensive digital library.
This repository could include insights on retirement planning, portfolio optimization and the fundamentals of investing, presented through articles, videos and tutorials.
When your emotions are high, you may be well served to take time to pause and reevaluate your thinking.
Often, well-targeted and relevant thought leadership and insights can help contextualize what’s going on in the market and provide critical perspective to balance out emotional drivers.
These resources typically include historical market trends, investment strategy tools and reminders about the importance of maintaining your approach.
By staying informed and grounded, you can make more confident and strategic decisions about your portfolio.
No. 3: Digital alerts
Investors can benefit from tools that keep them focused and enable timely decisions. Digital alerts can help investors by providing real-time notifications of important market trends in a way that encourages thoughtful consideration and accountability, reducing the effects of emotion.
For example, Vanguard shares a notification in our mobile app that links to trading best practices, like using order types, when volatility reaches high levels.
Paying attention to messages like these can help you maintain control over your investments and reduce the impact of emotional decision-making during a period of volatility.
No. 4: Personalized guidance
Sometimes navigating volatility requires real-time decision-making and planning in advance. Instead of feeling inclined to sell or drastically change your portfolio when the market ebbs and flows, review your broader financial plan, check your portfolio diversification and risk tolerance, and identify any steps you might be missing to fulfill your goals.
Your smartphone can help, as many investment providers offer proactive nudges to help you take actionable next steps toward meeting your investment goals.
Sometimes emotion gets in the way, and proactive messages can remind investors that they have a goal — for example, they want to save for retirement or prepare for their child’s education expenses. Interventions include SMS notifications to not miss the IRA contribution deadline or to alert you to a new 529 account savings opportunity.
Such “to-dos” can help you refocus on the rational reasons for the decisions and minimize the emotional impact by helping you take your next best action.
By staying focused on your long-term objectives and leveraging these tools, you can make healthier moves in your portfolio.
Staying the course
Successfully navigating the market requires consistency and focusing on long-term goals. While it may be tempting to overhaul your investment strategy in response to your emotions, such drastic changes often lead to poor outcomes.
Instead, relying on a well-considered investment plan, available mobile app features and strategies that balance emotion and logic will help you make decisions that align with your long-term objectives.
Related Content
- Stick to the Plan: Don't Panic During Economic Uncertainty
- Three Keys to Logical Investing When Markets Are Volatile
- Market Volatility Tempting You to Get Out? Read This First
- During Market Volatility, Avoid These Common Investing Pitfalls
- Four Historical Patterns in the Markets for Investors to Know
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
I'm 61 and need $50,000 for home repairs. Should I borrow given today's rates or take a withdrawal from my $950,000 401(k)?We asked financial experts for advice.
-
Headed for the Retirement Red Zone? This Eight-Step Game Plan Helps to Avoid FumblesThese strategies help safeguard your nest egg and ensure long-term financial success during the five years before retirement and the five years after.
-
I'm a Financial Planner: This Is How You Can Get Started With RMDsThe IRS will come knocking for its share of your tax-deferred retirement savings when you hit 73, but planning ahead for RMDs will ensure you're ready.
-
How Will You Replace Your Paycheck in Retirement? A Financial Adviser's Tips on Income PlanningBills don't stop once you retire — and you can't expect your Social Security checks to cover them all. Don't risk running out of money. Instead, make a plan.
-
From Pets to Paintings: The Little Things That Can Cause Big Estate TroubleSentimental items might have little monetary value, but their disposition can cause hurt feelings. Talking about who wants what and labeling items can help.
-
The Clock Is Ticking: Take Advantage of These Retirement Tax Benefits While They LastRecent tax changes, including an extra $6,000 deduction for those 65 and older, present a golden opportunity for retirees to reduce their tax bills.
-
I'm a Financial Adviser: This Is Why Unmarried Same-Sex Couples Need an Estate PlanWhen illness or death occurs within an unmarried same-sex partnership, family members can step in and push the surviving partner out. An estate plan is vital.
-
Stocks Bounce But End With Big Weekly Losses: Stock Market TodayThe stock market rout continued on Friday, but a late-day burst of buying power brought the main indexes off their session lows.
-
Costco Gold Bars Keep Selling Out. Are They a Smart Investment?How Costco's bullion program works, how to get the best deal and whether it makes sense for investors.
