Improving Investor Behavior: History over headlines

As I write this on a Sunday evening, I know you won’t read it for several weeks. I say this not to demonstrate the lengthy process from pen to newspaper, but rather to illustrate a point: This isn’t a market forecast, hot take, or quick response to something said moments ago. My goal is not to contribute to the daily financial news cycle, but instead to offer something much less common: perspective.

Perspective is in increasingly short supply right now. Business news and market commentary is ever focused on urgency. Economic data, breaking news, market volatility, tariffs, politics, rumors, legislation … I grow weary just thinking about it all. Yet these pundits would have you believe that it’s your job — nay, your responsibility — to stay on top of each daily development and act immediately. The temptation to react is strong because of implied accountability: With everything going on in the world, you’re going to stand still and do nothing?!

Yes, that’s correct.

Good investor behavior requires thinking long-term, staying grounded, and resisting the belief that daily market machinations are important enough to warrant changes. Remember, a well-crafted financial plan doesn’t aim to avoid volatility, but to account for it, despite any indigestion it may cause. We know things may seem dark or precarious. Advances in the market are rarely a straight line. But given enough time, history shows us that things always get better.

Take Thursday, April 17, as an example. Heading into a long weekend, the S&P 500 closed at around 5,280, a drop of about 14% from its recent highs. That drop felt like a gut punch to many, especially with ongoing news coverage framing current events as ominous, permanent or unrecoverable. If you were watching markets then, can you recall how you felt?

But if we zoom out, we find that over the last 45 years, the average intra-year market decline in the S&P 500 was, no joke, 14.1%. In other words, what we recently experienced is remarkably (and statistically) average. Big declines happen virtually every year; they’re the price of admission for long-term investors. In January, most investors would have loved an opportunity to buy stocks at a 14% discount. But when the market actually dropped that much three months later, many quickly forgot that perspective.

Our challenge as investors is not to predict a perfectly uncertain future, but to deal with it as it arrives. As Napoleon said, “A genius is a man who can do the average thing when everyone else around him is losing his mind.” Markets will rise and fall, just as they always have. As the word “average” implies, about half of the last 45 years saw drops in excess of 14%. But in 34 of those 45 years, the S&P 500 ended the year higher than it started. In that time, we’ve seen wars, terrorism, economic calamities and more, offering a powerful reminder that markets are built to recover over time. Markets reflect growth, innovation, productivity and the hard work of millions across the country and world, as businesses constantly find ways to adapt to ever-changing conditions.

It’s hard to deliver a balanced perspective when a headline is valued primarily on its ability to capture attention. That’s why financial commentary is focused on the here and now — nothing beyond the tips of our noses. But context is crucial to framing daily events and realizing how little they may matter to our long-term plans.

Let’s take a longer look back. On March 9, 2009, the S&P 500 hit its financial-crisis low of about 675, down almost 57% over a brutal 17 months. Stop and consider, what would your current portfolio look like if it were cut in half? Would you have the strength and courage to stay invested? The Great Recession felt apocalyptic to many investors. Yet over the next 16 years, the market compounded at an average annual rate of 16%. Those years brought new advancements in technology and human ingenuity that were unimaginable at the bottom of the cycle. That’s more context headlines won’t give you.

When markets decline, as they will, the first thing most investors lose isn’t money; it’s perspective. Without perspective, we risk making decisions that are far more damaging than any temporary market drop. Business and financial media work hard to shorten your time horizon. They want you to think in days, not decades. But if you’re focused on saving for retirement and building wealth over time, your attention should be focused 20 to 30 years ahead. The longer your time horizon, the more important perspective becomes.

Our ever-present choice is where we steer our focus: headlines or history. Headlines will always be loud, attention-grabbing and seemingly urgent. But history offers a quiet truth: Businesses will adapt, markets will recover, innovation will continue, and patience will be rewarded.

Steve Booren is the founder of Prosperion Financial Advisors in Greenwood Village. He is the author of “Blind Spots: The Mental Mistakes Investors Make” and “Intelligent Investing: Your Guide to a Growing Retirement Income” He was named by Forbes as a 2024 Best-in-State Wealth Advisor, and a Barron’s 2024 Top Advisor by State.