The distractions that are messing with your investing

By John Spence


For long-term investors, one of the most notoriously difficult tasks is keeping your eyes on the prize.

That means sticking to the long-range plan and staying disciplined. It also means not getting sidetracked by negative headlines or the worry du jour that investors are fretting over this particular week, such as geopolitical tensions, interest rates and inflation. On the contrary, the market loves to climb a wall of worry, as they say.

To that end, we recently sat down with Alex MacAndrew, CFA, and Investment Director at Covestor, to talk about how investors can avoid the short-term distractions that can lead to bad, emotion-driven decisions. He also discusses his role at Covestor and some recent initiatives to help investors reach their financial goals.

Below is an edited transcript of the interview with MacAndrew:

Q: Let's talk about the market. How should investors approach the recent geopolitical tensions in Ukraine and elsewhere around the world?

A: The first thing investors should remember when they're seeing those scary headlines and images is to not make decisions based on their emotions. The nature of being a long-term investor is that you have to be prepared for events that will negatively impact the market.

That's why when you're assembling an overall portfolio, you really want to determine what's called your risk tolerance. You want to figure out what kind of loss you're willing to endure. Of course, it's notoriously difficult to accurately determine your risk tolerance. It's tough for people to predict how they'll react to say a 20% loss without actually experiencing it, and the pain and anxiety that go along with it.

So if an investor goes into shell-shock or starts seriously panicking when markets fall, that suggests he or she shouldn't have as much of their portfolios in stocks. They would need to lower the overall risk of their portfolios.