How To Switch Off From The Markets This Holiday Season

How To Switch Off From The Markets This Holiday Season
Andrew Rummer

about 2 years ago4 mins

  • Investor sentiment has been on a wild ride since Thanksgiving, thanks to Omicron and a less accommodative Fed.

  • Some of Finimzers’ most popular investments – from tech stocks to crypto – have seen some of the biggest swings, both down and up.

  • If you keep disciplined, there are ways to be in the markets without letting their price swings overwhelm you.

Investor sentiment has been on a wild ride since Thanksgiving, thanks to Omicron and a less accommodative Fed.

Some of Finimzers’ most popular investments – from tech stocks to crypto – have seen some of the biggest swings, both down and up.

If you keep disciplined, there are ways to be in the markets without letting their price swings overwhelm you.

Mentioned in story

With little more than two weeks left before markets close for Christmas, investors hoping for a soothing end​ to the year have been battered by the sharpest bout of volatility in 10 months. So let’s take a look at what’s been happening, and how you can have a silent night over the holiday season.

What happened this week, and why?

November and December are historically strong months for stocks, particularly when they start the period as firmly in the green as they did this year. You’ll hear plenty of professional investors talk about markets experiencing a “Santa rally” as fund managers add “window dressing” to their portfolios – that is, buying well-performing stocks and selling the weaklings so their funds end the year on a high. 

But last week, stocks at historically high valuations were hit by a double whammy: the Omicron variant and comments from Federal Reserve chair Jerome Powell, who said that the US central bank should consider paring back its market-supporting bond purchases faster than scheduled, as well as retire its description of inflation as “transient”. 

That sent the VIX – a measure of volatility in US stocks inferred from the amount people are paying for options – above 30 for the first time since February, and pushed CNN’s Fear and Greed Index into “extreme fear” territory.

The VIX jumped above 30 last week
The VIX jumped above 30 last week

For much of last week, then, investors sold off stocks – particularly those of the most speculative companies that are yet to turn a profit – and other risky investments like crypto, and instead headed for the safety of government bonds.

Markets since Thanksgiving

With so much of the stock market’s valuation underpinned by bond yields, it’s no surprise that investors were so sensitive to a shift in the Fed’s tone and faster-than-expected inflation. Equally, the shock of a coronavirus variant that emerged just as they started to look forward to an end of the pandemic has clearly dented their confidence in the economic recovery. 

But then this week, stocks soared once more, driving the S&P 500 back up towards its all-time high as investors reversed the flight-to-safety trades they’d only just made. That was aided by a study showing that a new Covid vaccine from GlaxoSmithKline was effective against multiple virus variants, as well as by looser monetary policy from China’s central bank. 

All eyes are now on this Friday’s US inflation report – which is expected to show consumer prices jumped by a massive 6.8% in November versus the same time last year – and on the Fed’s subsequent response in its last policy meeting of the year on December 15th. 

So what should you do about all this?

The past couple of weeks’ volatility is a reminder that markets have the attention span of a sleep-deprived toddler. And while it can sometimes be helpful to understand why markets may be moving on any given day, chasing headlines can at best be a recipe for unwarranted stress, and at worst lead to poor investment returns. Plenty of research shows that investors who touch their portfolios the least have the best performance over the long term, after all. 

So as we head towards the end of the year, here’s a list of tips to help you avoid falling prey to volatility-induced panic: 

  • Don’t look at your investments too often. Whenever markets – whether stocks or crypto – are falling sharply, you can feel an urge to sell. Succumb too often and you may find yourself locking in losses with every brief bout of volatility.
  • Try to avoid tracking the financial news too closely. Finimize’s Daily Brief will keep you up to date on anything truly important. You don’t actually need to chase every headline to be a good investor.
  • Consider moving to lower-beta parts of the stock market. A high beta stock will rise more than the market when times are good, and fall more when they’re bad. Adding stocks to your portfolio with a lower – or even negative – beta (which you can find listed on sites like Yahoo Finance) will reduce the amount of red you see on down days.
  • Set a rule for when you’ll exit and stick to it. You might decide to, say, cut your losses if a stock drops 20%, or sell half if the stock doubles. Whatever your plan, decide it in advance and set up alerts or stop losses. Then you can close your trading app and go on with your life in peace.
  • Consider setting and forgetting. Set up a regular monthly payment into a broad market exchange traded fund (ETF) or two, wait a decade or more, and let your wealth slowly build as you spend your time worrying about other things. You don’t have to do this for your entire portfolio: just a chunk of your investments.

While hardly thrilling, these tips will help you avoid too manic panicked glances at your brokerage account or sleepless nights. And remember: there’s no point becoming richer if you’re too stressed to enjoy it.  

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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