Skip to main content Skip to chat

Tuning out market noise

June 2, 2022

Written by Preet Banerjee

Key takeaways

  • Distractions such as news headlines about short-term market movements are often referred to as ""noise"" by long-term investors.

  • We can’t predict how markets will react after economic or geopolitical events, and there will always be events that create uncertainty.

  • Noise pulls our focus from long-term returns and onto short-term volatility. Making reactive changes to their portfolio is one of the main ways people lose out on potential returns.

  • There are fluctuations in the market, but overall, things have ultimately trended upward. 

Tuning out market noise

Some of the biggest distractions for long-term investors are news headlines about short-term market movements, whether they're due to economic shifts, current events, or anything else. This is often referred to as "noise". 

Consider the following market noise headlines: 

August 4, 2011: "Stocks Plunge on Fears of Global Turmoil" 

September 30, 2013: "Dow Jones and Nasdaq down sharply as US government shutdown looms" 

October 24, 2018: "Slumping Stock Market Enters Negative Territory for the Year" 

It's important to note that between the beginning of the year of the first headline and the end of 2019, The S&P 500 (one of main US stock market indices) had an inflation-adjusted annualized return of 11.37% and that $1 invested would have grown to $2.63 at that rate of return.¹ 

Keep in mind: 

1. We never know how markets will react after economic or geopolitical events. They could rebound, stay flat, or keep going down. 

2. There will always be events that create uncertainty, and as long-term investors, our resolve will continually be tested from time to time. 

How to deal with market noise 

The above headlines pull our focus from the long-term returns of the market and onto the short-term volatility that can persuade us to make changes to our investing strategies. Making reactive changes to their portfolio is one of the main ways people lose out on potential returns available by simply sticking to their plans. 

Build your portfolio for the long term 

A prudent portfolio takes into account that, yes, the short term is unpredictable, but over the long term, patient investors get rewarded for stomaching those ups and downs. The more tuned in to short-term market movements you are, the more tempted you'll be to abandon those long-term investing plans. 

And don't forget: unless your portfolio is 100% in equities, whether they're stocks or ETFs (Exchange Traded Funds), your portfolio is likely going to be less volatile than the headlines indicate. 

Ignore the noise 

Noise is not new. This is something that's always existed, and likely always will. Take a look at the 100 Year Historical Chart of the Dow Jones Industrial Average. When you take a step back, you'll notice the overall direction of the chart. There are fluctuations, but things have ultimately trended upward. That's the difference between a short-term focus and long-term focus. 

1 Based on numbers from this chart and calculations done here. Adjusted for inflation, includes re-investment of dividends.

This article or video (the “Content”), as applicable, is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this content, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and Tangerine Bank is not responsible to update this information. References to any third party product or service, opinion or statement, or the use of any trade, firm or corporation name does not constitute endorsement, recommendation, or approval by Tangerine Bank of any of the products, services or opinions of the third party. All third party sources are believed to be accurate and reliable as of the date of publication and Tangerine Bank does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.

Tangerine Investment Funds are managed by 1832 Asset Management L.P. Tangerine Investment Funds Limited is the principal distributor of Tangerine Investment Funds. Tangerine Investment Funds Limited and 1832 Asset Management L.P. are wholly owned subsidiaries of The Bank of Nova Scotia. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.