Key takeaways

  • Investors today are inundated with information, making it challenging to stay focused on long-term goals
  • Emotional reactions to news headlines can lead to irrational investment decisions, often resulting in underperformance
  • This article explores the psychology behind emotional investing and offers strategies for plan sponsors to help their participants maintain a disciplined approach

Information abundance

Despite having abundant access to investment information, individual investors still need help finding success in financial markets, often underperforming broad market indexes. While there are many causes for this underperformance, frequent trading (often at inopportune times) is the primary culprit. Much of the frequent trading happens as individual investors react to news headlines.
An investor looking at her computer with a concerned look on her face.
Underperformance of average investors (2013-2023):
  • 6.0%: Average annualized return for individual investors compared with 7.7% for professional fund managers1
  • Frequent trading and short holding periods contribute to this underperformance.
A bar chart showing that the average professional fund manager achieves an average annualized return of 7.7% vs. an average investor who achieves just 6.0%

Note: Average annualized returns do not reflect asset manager fee reductions.

Source of news and the role of emotional investing

During stressful market cycle events driven by economic, political and international events, emotions can override rational thinking, leading to impulsive decisions. This is often exacerbated by broadcasters and publishers of financial news attracting viewers by prioritizing sensational headlines over providing valuable information.

  • Online platforms, including social media, are increasingly influential; 72% of people are sourcing news from these platforms2
  • Television and social media each remain a significant source of news for investors, with 48% of people accessing these platforms2

For example, the fluctuation in financial markets can demonstrate how news headlines can affect investors. It is often said that investors climb a “wall of worry” as market cycles reach their final stages, either at the bottom of bear markets or near the peaks of bull markets.3

A chart that shows the rises and falls in the stock market in correlation to news events

Impact of missing key market days

Missing the 10 best days in the market can reduce returns significantly. For example, a $10,000 investment in the S&P 500 from 2004 to 2024 would grow to $43,752 if fully invested, but only to $20,065 if the 10 best days are missed. This underscores the importance of staying invested according to a participant’s long-term investment strategy rather than trying to time the market.4

A bar chart showing how divesting from the S&P 500(R) Index, and therefore missing the best days of market performance, can hamper the growth of a $10,000 investment vs. staying fully invested

Strategies for plan sponsors

  1. Educate participants: When participants seek your guidance, provide resources that explain the impact of emotional investing and the importance of a long-term perspective. Nationwide offers live and on-demand education on the impact of emotional investing.
  2. Offer access to professional resources: Ensure that participants have access to licensed professionals who can help them stay focused on their goals. Because you partner with Nationwide, your participants have access to a variety of resources that can help.
  3. Highlight the cost of market timing: Use historical data to show the potential losses from trying to time the market.
  4. Promote understanding of diversification: Encourage participants to frequently review and maintain an allocation they are comfortable with, which may include protection strategies. Diversification and asset allocation do not assure a profit or protect against loss in a down market.

Incorporating protection strategies is a relatively new development in retirement plans. While staying the course is typically a good bet, sometimes emotions prevail and participants look for investments that offer downside protection. This is why we introduced Nationwide Indexed Principal Protection®, a group fixed indexed annuity that can be offered in a retirement plan’s investment lineup. It offers the opportunity for growth while guaranteeing that the participant’s principal is protected from loss. Fees associated with recordkeeping may still apply, and therefore there is potential for a loss of principal in a down market.

What's next?

Emotional investing can significantly impact retirement savings. By understanding the psychological factors at play and leveraging the available tools and education, you can help your participants achieve better outcomes and implement protection strategies that may help them stay more confident in turbulent markets. Encourage your participants to stay disciplined, avoid reacting to headlines, and focus on their long-term investment plans.
You can take proactive steps to help participants navigate market volatility.
Nationwide also offers protected solutions that can help protect participants’ savings 
from market downturns, with the potential to rebound when the market does.
Learn about principal protection
[1] Source: Morningstar, via Index Fund Advisors “Investor Behavior Impact on Returns.”
[2] "Digital News Report 2023," Reuters.
[3] FactSet Research Systems and Nationwide (May 2024).

[4] FactSet Research Systems (February 2024).

IMPORTANT DISCLOSURES

This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.

Except where otherwise indicated, the views and opinions expressed are those of Nationwide as of the date noted, are subject to change at any time, and may not come to pass.

Market index performance is provided by a third-party source that Nationwide deems to be reliable. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses have been reflected. Individuals cannot invest directly in an index.

S&P 500® Index: An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U.S. companies in leading industries; it gives a broad look at the U.S. equities market and those companies’ stock price performance.

S&P indexes are trademarks of Standard & Poor’s and have been licensed for use by Nationwide Fund Advisors LLC. The Products are not sponsored, endorsed, sold or promoted by Standard & Poor’s, and Standard & Poor’s does not make any representation regarding the advisability of investing in the product.

©2025 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Nationwide Funds are distributed by Nationwide Fund Distributors LLC (NFD), member FINRA, Columbus, Ohio. Nationwide Investment Services Corporation (NISC), member FINRA, Columbus, Ohio. NFD and NISC are not affiliated with Morningstar, Inc.