Statement Shock

Statement Shock

Investopedia / Paige McLaughlin

What is Statement Shock?

Statement shock is a common slang term used to convey the unsettling jolt sort of feeling associated with opening an investment statement and seeing that the value of your portfolio has dropped more than expected.

Key Takeaways

  • Statement shock is an immediate negative reaction by an investor to a disappointing financial statement regarding their investment returns.
  • It is most common among inexperienced investors who may have overly optimistic expectations of the consistency of the returns they should expect.  
  • Statement shock can lead to serious emotional distress and potentially harmful over reactions by investors.

Understanding Statement Shock

Statement shock relates to a strong emotional reaction, usually a negative or upsetting one, after seeing a financial statement. It most commonly happens as a result of an unexpected drop in value, but it can also be caused by lower-than-expected returns.

Many investors will contribute to an investment fund and receive periodic statements in the mail on a monthly, quarterly, or annual basis. The average investor usually does not follow the day-to-day fluctuations of their portfolio and therefore will be shocked upon receiving their update to see a large change in value from one statement to the next.

Statement shock is most likely to occur following large downturns in the market. When the market or the economy in general declines, this will normally create a ripple effect that will be reflected in the performance of retail stocks.

Avoiding Statement Shock

In reaction to statement shock, individuals may instinctively make emotional, spontaneous investment decisions. In many cases, this makes the situation worse because they act out of panic and desperation without giving their long-term strategy serious thought. Panic selling, closing an account, or becoming soured on investment in general due to a single quarter of lackluster performance can sabotage long-term gains. 

This type of response is more likely among relatively inexperienced investors, who may not be psychologically prepared for the roller coaster up-and-down activity that can be a routine part of a normal investing cycle. These investors may also not realize that sudden or short-term drops can often be leveled out in large part over time. So statement shock can frequently be avoided when investors take a more measured view of investing and focus on the long-term goals instead of short-term results. 

On the other hand, investors who are close to, or in, retirement already may also be sensitive to statement shock. Because of their relatively short time horizons, these investors may be more justified in seeing short-term results as a more urgent problem. In this case, following an investment strategy that carefully manages risk inorder to avoid short-term volatility of returns in the first place is the name of the game.  

Investors must focus on the big picture, and concentrate on long-term goals and the gains they may realize in the future, as opposed to obsessing over sudden and likely short-term fluctuations. Emotional reactions such as those associated with statement shock can cause considerable anxiety, and can take a significant psychological toll on investors.

In a non-investing context, statement shock may sometimes also be used to refer to the unsettling feeling a consumer might get upon receiving their credit card statement, particularly if they have lost track of their spending or went on a large shopping spree. It can also refer to a severe emotional response to any type of billing statement.

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