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How to stay in control and avoid emotional investing decisions

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Yellow Dog Prod. | Image Bank | Getty Images

We witnessed the tale of two markets in 2020.

The market experienced a short, steep and frightening freefall. Yet it quickly turned, with stocks finishing the year near all-time highs.

This unique experience had a big impact on the psyche of investors and, consequently, how they managed their money. Some investors became too traumatized to put cash to work in the markets. Others reacted by aggressively day trading and made rash investment decisions.

Neither of these behaviors are beneficial for long-term financial success. Evaluating both reactions, and incorporating a proper process-oriented approach for managing your investments, is the best way to avoid similar missteps in 2021.

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As the market dropped, the economic situation looked bleak, with unemployment reaching numbers not seen since the Great Depression. I remember having conversations with investors as the market fell where I suggested putting some cash to work. Some of the responses I received broadly fell into the theme of “I don’t want to catch a falling knife,” “Let’s wait for things to settle down” or “Let me think it over and get back to you.”

All these reactions were essentially just a way for investors to procrastinate. I advised against that approach but they were, understandably, scarred by the freefall they had just experienced.

As time passed, that procrastination morphed into “investor inertia.” These folks became too comfortable sitting in cash, and they had no strategy to get back into the market. As a result, they missed out on the market rebound and lost buying power due to inflation. Both consequences could have a long-lasting impact on the ability for some of these investors to reach their financial goals.

The Federal Reserve, Treasury and Congress acted quickly to ease monetary policy and approve the CARES Act, and loans for small businesses through the Paycheck Protection Program helped prop up the economy.

This spurred the market to begin recovering and helped investors to regain some confidence.

Over time, however, this confidence turned to overconfidence, with millions deciding to try their hand at day trading.

The most popular stocks also had some of the best performance. Consequently, many investors continued to pile into their favorite names, ignoring basic investing principals such as proper diversification.

Adding to the investment excitement were spikes in value of some crypto currencies, a record number of initial public offerings and the rise in popularity of Special Purpose Acquisition Companies (SPACs). These factors, coupled with the market’s meteoric rise, fed into the euphoria that propelled some investors to throw caution to the wind. Many of these day traders were rewarded for their imprudence with eye-popping returns to close out the year.

It’s during times of exuberance that it’s especially important to remember that markets move in cycles. A winning period for a group of stocks may be followed by a period of underperformance. This can be clearly seen throughout market history. The S&P 500 is experiencing a decade of outsized returns. However, investors are quick to forget that the index was flat from 2000 to 2010.

The reverse is true of emerging market stocks. They had a lackluster average return of approximately 3% annually for the past 10 years, following the stellar 37% average annualized returns from the decade prior.

Sectors move in cycles, as well. Technology stocks are currently having a wonderful run. However, it took 15 years for the NASDAQ to regain its peak after falling 70% when the dotcom bubble burst. Years of underperformance are a characteristic of the market. They are not an anomaly. Investors must plan accordingly.

So, how do investors overcome these behaviors?

Build a process-oriented approach to investing

A remedy for overcoming investor psyche, and both of the above resulting behaviors, is the same. It requires putting together a process-oriented approach for your investing. This involves four key components.

First, establish an investment policy statement. An IPS allows investors to clearly define their financial goals and other guidelines for how they want their money managed. A properly established IPS serves as a guiding light during both bear and bull markets and prevents investors from losing sight of what they are trying to achieve with their wealth.

Embracing diversification is not as exciting as trading the hot stocks of the day. However, it minimizes the chance of a catastrophic loss, which may help keep investors on track to achieve their objectives. To use a baseball analogy, you don’t need to hit home runs to win the game. It’s far better to focus on consistently getting base hits and avoiding a strike out.

Periodic rebalancing is also key. Rebalancing is readjusting portfolio weightings as investments fluctuate in value. Setting up predetermined weighting thresholds for each investment or a regular schedule when rebalances should occur, instead of trying to determine an optimal time to buy or trim one’s holdings, allows this process to happen automatically without emotions getting involved.

Get acquainted with dollar-cost averaging. This is the process of automatically adding money to your portfolio on a regular basis. This removes the temptation to time the market and alleviates the concern of investing at the wrong time. Regardless of what is happening in the market, money will continue to be added at regular intervals, allowing one’s investments to continue to compound over the long-term.


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5 things to know before the stock market opens January 21, 2021

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Coronavirus vaccine myths busted by experts

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Jane Lee MD winces as she gets a Covid-19 shot in Weymouth, Massachusetts.

MediaNews Group/Boston Herald via Getty Images | MediaNews Group | Getty Images

Vaccine skepticism and outright anti-vaccination sentiment has become rife in recent months, with more members of the public questioning not only the efficacy of vaccines, but their development practices, safety standards and their objectives.

The rapid development of coronavirus vaccines over the past year, an urgent task given the devastation to lives and livelihoods being caused by the global pandemic, has made them a prime target for hesitancy and myth.

But disinformation and misinformation that casts doubt over safety and efficacy can endanger lives.

The World Health Organization said vaccine hesitancy was among its top 10 global health threats in 2019. Vaccination, it said, “prevents 2-3 million deaths a year, and a further 1.5 million could be avoided if global coverage of vaccinations improved.”

When it comes to Covid-19 vaccines, experts and public health officials say it’s crucial to combat misinformation (false or inaccurate information) and the more nefarious disinformation (that is, false information intended to mislead people) being spread about the jabs currently being deployed. Here are some of the main myths that are circulating about coronavirus vaccines:

Myth: Covid-19 vaccines are unsafe because they were developed too fast

Fact: The coronavirus vaccines that are now being deployed have undergone strict and rigorous clinical trials involving thousands of human participants after initial animal trials.

Vaccine makers have insisted that no corners were cut and trial results have proved the vaccines are safe and effective. Before being authorized for use, trial data from the vaccines — such as those made by Pfizer-BioNTech, Moderna and the University of Oxford-AstraZeneca — have undergone strict scrutiny by regulators including the U.S. Food and Drug Administration, the European Medicines Agency and Britain’s Medicines and Healthcare products Regulatory Agency.

In late-stage clinical trials, both the Pfizer-BioNTech and Moderna vaccines were found to be 95% and 94.1% effective, respectively, at preventing severe Covid-19 infection. The vaccine developed by the University of Oxford and AstraZeneca was found to have an average efficacy of 70%. 

When the U.K. became the first country in the world to approve the Pfizer-BioNTech vaccine in early December, Dr. June Raine, chief executive of the U.K.’s MHRA, said no corners had been cut in its approval, saying experts had worked “round the clock, carefully, methodically poring over tables and analyses and graphs on every single piece of data.”  

The MHRA’s scientists and clinicians conducted a “rolling review” of the data as it was made available during clinical trials, hence allowing it to speed up its assessment of the vaccine and whether to authorize it. This was critical, the MHRA said, given the public health emergency.

Chinese health care workers and volunteers wear protective clothing as they register people to receive a Covid-19 vaccine jab at a mass vaccination center for Chaoyang District on January 15, 2021 in Beijing, China.

Kevin Frayer | Getty Images News | Getty Images

Myth: Coronavirus vaccines alter DNA

Myth: Coronavirus vaccines affect fertility

Fact: Some women are concerned that the coronavirus vaccine could harm their fertility and there has been a mass of misinformation online regarding this. Indeed, on Tuesday, the U.K.’s Royal College of Obstetricians and Gynaecologists and the Royal College of Midwives issued a statement about Covid-19 vaccinations, fertility and pregnancy.

In it, Dr. Edward Morris, president at the Royal College of Obstetricians and Gynaecologists, said: “We want to reassure women that there is no evidence to suggest that Covid-19 vaccines will affect fertility. Claims of any effect of Covid-19 vaccination on fertility are speculative and not supported by any data.”

He continued: “There is​ ​no biologically plausible mechanism by which current vaccines would cause any impact on women’s fertility. Evidence has not been presented that women who have been vaccinated have gone on to have fertility problems.”

A woman receives the vaccination the Pfizer-BioNTech vaccine.

KONTROLAB | LightRocket | Getty Images

Myth: The vaccine is unsafe for me because I’m pregnant

Fact: The truth is there is limited data about the safety of Covid-19 vaccines for people who are pregnant, the CDC states on its website.

Of the data available from animal studies, “no safety concerns were demonstrated in rats that received Moderna COVID-19 vaccine before or during pregnancy; studies of the Pfizer-BioNTech vaccine are ongoing,” the CDC said.

Studies in people who are pregnant are planned and both vaccine manufacturers are monitoring people in the clinical trials who became pregnant, it added.

In the U.K., where the AstraZeneca and Pfizer-BioNTech vaccines are currently being deployed, the government states that: “the vaccines have not yet been tested in pregnancy, so until more information is available, those who are pregnant should not routinely have this vaccine.”

Nonetheless, the government notes that evidence from non-clinical studies of both the Pfizer-BioNTech and University of Oxford-AstraZeneca vaccines have been reviewed by the WHO and regulators around the world, and have “raised no concerns” about safety in pregnancy.

The U.K.’s Joint Committee on Vaccination and Immunisation, which advises the government on its vaccination strategy, “has recognized that the potential benefits of vaccination are particularly important for some pregnant women,” including those at very high risk of catching the infection or those with clinical conditions that put them at high risk of suffering serious complications from Covid-19. In these cases, the government recommends that women discuss possible vaccination with their doctor.

Traders work on the floor of the New York Stock Exchange.

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Myth: If you’ve had the vaccine you don’t need to wear a mask

Fact: Even if you are immunized against Covid-19, it is possible that you could still pass the virus on to others. We still don’t know how vaccination against Covid-19 affects onward transmission and until we do — and while many people remain unvaccinated — people are being urged to follow social-distancing guidelines, wear masks and wash hands to prevent possibly passing the virus on.

Myth: I don’t need the vaccine because I’ve already had Covid-19

A Registered Nurse tends to a Covid-19 patient in the Intensive Care Unit at Providence St. Mary Medical Center in Apple Valley, California on January 11, 2021.

Ariana Drehsler | AFP | Getty Images

Myth: You can get Covid-19 from the vaccine

Fact: You can’t get Covid-19 from the Pfizer-BioNTech or Moderna coronavirus vaccines because they do not contain live virus. Meanwhile, the University of Oxford’s Vaccine Knowledge Project explains that the active ingredient of the Oxford-AstraZeneca vaccine “is made from a modified adenovirus which causes the common cold in chimpanzees. This virus has been modified so that it cannot cause an infection. It is used to deliver the genetic code for the coronavirus spike protein.”


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