Paul's Insights: Avoiding infoxication: Staying on course as an investor
I read macroeconomic commentary carefully. But it’s at those times when 100 percent of commentary favours one position that I tend to question what’s being said.
It’s not that I’m a contrarian. Rather, I see myself as a ‘commonsensian’. If everyone’s telling me that we’re in a boom and I should ‘buy now’, I get nervous. On the flipside, if everyone tells me that from a macroeconomic viewpoint the sky really is falling in and Chicken Little is right, I see it as a time to buy.
If an overload of macroeconomic commentary is leaving you confused and uncertain, the solution is simple: Switch off the ‘noise’ for a while. Research shows that information overload – also known as ‘infoxication’ – doesn’t just fuel anxiety, it can also impede our ability to make rational decisions.
One thing I do get fretful about is unrealistic expectations around investment returns.
It’s surprising how often people tell me they’re looking for returns in the order of 20%. These sorts of expectations are way out of whack. Once in a while asset markets dish up significant double digit gains but it doesn’t happen very often. Fortunately, those years when markets record big losses are equally uncommon.
We’ve just come through a period where Australian and international shares have delivered healthy returns, and understandably, this has fostered high expectations.
However, over the long term – by which I mean 10 years-plus, I’d expect a diversified portfolio with exposure to multiple asset classes, to deliver returns of around 4-5% above inflation. This is the sort of benchmark we should be anchoring our expectations to.
Of course, there are no guarantees over returns. The one thing I am of certain of in life is that returns are a hope but fees are an absolute certainty.
While none of us can control investment markets, we can all take control of the fees we pay. And in this day and age there is no reason for anyone to be paying high fees on investments – it’s just not necessary with modern technology.
Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.
Frequently Asked Questions about this Article…
Infoxication refers to information overload, which can lead to anxiety and hinder our ability to make rational investment decisions. It's important for investors to filter out excessive macroeconomic commentary to avoid confusion and stay focused on their investment strategy.
Investors should align their expectations with realistic benchmarks. While occasional double-digit gains can occur, a diversified portfolio is more likely to deliver returns of around 4-5% above inflation over the long term. It's crucial to avoid expecting consistently high returns and to focus on sustainable growth.
When all commentary points in one direction, it can be a sign to question the prevailing sentiment. Being a 'commonsensian' means not blindly following the crowd, but instead evaluating the situation critically to make informed investment decisions.
Investors can control the fees they pay by leveraging modern technology and choosing low-cost investment options. High fees are unnecessary in today's market, and reducing them can significantly impact overall investment returns.
A realistic long-term return expectation for a diversified portfolio is around 4-5% above inflation. This benchmark helps investors set achievable goals and maintain a balanced perspective on their investment journey.
Investors can avoid being swayed by market hype by focusing on their long-term investment strategy and not reacting impulsively to short-term market trends or sensational commentary. Staying informed but not overwhelmed is key.
Paul Clitheroe is the Chairman of InvestSMART and the Australian Government Financial Literacy Board. He is also a chief commentator for Money Magazine, providing insights and guidance to help improve financial literacy among investors.
A diversified investment portfolio helps spread risk across multiple asset classes, reducing the impact of any single market downturn. This approach can lead to more stable returns over the long term, aligning with realistic investment expectations.