2025 has not been the easiest year for investors. Since Donald Trump was sworn in for a second term as US president, there has been fear of a recession, tariff wars, geopolitical tension and overall panic in the investment landscape. Considering any of these would certainly make any investor disoriented and wonder if the sky is falling? Is the bottom going to drop out? At this point investors may consider pulling the plug on their investments or fleeing to a perceived safer option.
The reality is investing in the current climate is not for the faint of heart and knee-jerk reactions to information may erode long term gains. Strategic investing presents an opportunity to build wealth, but not without risks. Before investing more funds in any investment vehicles or realigning your portfolio you should take the time to consider your long-term goals, risk tolerance and time horizon. When these factors are accounted for in a well-thought-out strategy, you may be better prepared to ride out market swings and avoid the potentially devastating consequences of making emotionally charged financial decisions. Practicing self-control and keeping your eye on the long-term goal will help keep a clear head. Many times, the losses on your portfolio are only on paper (not actual or “realized” losses) and, depending on the assets you hold, it may be an opportunity to buy.
When the dust settles, investors frequently admit that they regret the impulsive and emotionally charged decisions they made in uncertain times. If you are watching your portfolio value fall it is natural to want to make a change but what you should do is have a clear plan to analyze. So, what can you do to go forward?
Firstly, are you following the crowd? Herd mentality and flocking towards what others are doing is a common misstep investors make. Especially if the herd involves friends or trusted associates. Their financial goals or risk appetite may be extremely different from your own.
Secondly keep in mind where you receive your information regarding your investments. Are the sources reliable? Is the news or data about the issuers or landscape from a vetted source? Social media does have its benefits but there is a plethora of inaccurate or biased information that may infiltrate your decision making.
Have you ever fallen into an “anchoring trap”. This bias is where investors rely too much on their perception (the anchor) of an investment which may be an irrelevant point. This belief now anchors them and makes them slow and inflexible to react when true, real or new information is presented.
Lastly, consider if you are experiencing recency bias. Investors fall into this trap when they are overwhelmed by recent events which could be positive or negative. An investor overweighs new information and events without being objective about the long term. A pitfall of this is where clients ignore that there is no evidence to support recent events going forward.
A solid plan to avoid knee-jerk decisions with your portfolio is to slow down thinking and calmly assess the facts. Admittedly, sticking to a long-term investment strategy is difficult, especially when faced with market volatility. However, being diligent and having the support of a licensed financial advisor can help you filter out the noise and make sound decisions to benefit your portfolio.
Christine Rankine is Assistant Vice-President Personal Financial Planning at Sterling Asset Management. Sterling provides financial advice and instruments in U.S. dollars and other hard currencies to the corporate, individual and institutional investor. Visit our website at www.sterling.com.jm
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