Rather than focusing on the day-to-day movements of financial markets, especially during times of heightened price volatility, here's what you should pay attention to instead.
If you checked on the status of your investment portfolio today, don't worry. You're definitely not alone.
In fact, you may have looked at how your various investment holdings are faring multiple times by now, just to see how much you've gained or lost since yesterday.
It's investing psychology in motion. Most of us do it, just because we can.
After all, it's so easy these days using mobile apps or online platforms. But doing this really contradicts one of the core principles of successful investing.
Rather than focussing on the day-to-day movements of financial markets, especially during times of heightened price volatility, what we should be doing is ignoring the constant market noise.
In the overall scheme of things, what happens today is largely irrelevant.
The power of compounding returns
While we're still a little way off from the end of this year, it's evident broader investment returns are well down on the strong gains achieved in 2021. They're actually negative.
The recent sharp market falls are mainly linked to current global economic conditions, headlined by soaring inflation and rising interest rates.
Feeding into these conditions are the dual impacts of the Russia-Ukraine war and the spread of COVID-19 through parts of China.
But market downturns are certainly nothing new. They do happen, for a range of reasons.
Think back to 2020 when financial markets fell more than 30 per cent over just a couple of weeks as investor panic set in over the spread of COVID-19.
It was a disturbing period for most investors, but within a short time markets had already started to rebound.
It's an important lesson for all investors. Which is why Vanguard produces a chart every year showing the total investment returns from a range of different asset classes over a 30-year period.
Among other key events, the last 30 years includes both the 2007-08 Global Financial Crisis and the 2020 COVID-19 market crash.
The 2021 Vanguard Index Chart shows that a $10,000 investment made into Australian shares in 1991 would have achieved a 9.7 per cent total return per annum if all distributions had been reinvested and grown to $160,498 by 30 June 2021.
Over the same time frame, and using the same strategy, a $10,000 investment into the broad United States share market would have delivered a 10.8 per cent per annum return and grown to $217,642.
The Vanguard Index Chart proves year after year that even a low initial balance will grow substantially over time when combined with compounding investment returns.
Sticking to a long-term investment plan, with diversification across a range of asset classes, allows you to grow your wealth even in the face of market crises and short-term volatility.
There's nothing inherently wrong with checking your investments daily, weekly or monthly.
However, regardless of daily events, what's most important is to stay focused on your investment goals and your overarching strategy to achieve them.
Investors who stay the course over time, riding through the regular ups and downs of the markets, have a much better chance of achieving investment success than those who take short-term positions and try to time when to buy and sell.