Let’s face it: Many of us are addicted to the news, whether or not we want to admit it. Every second of every day, there is a non-stop barrage of fresh, new events to scare us.
Yes, to scare us.
Consider this: When you watch TV news or read a newspaper or follow your social media news feed, there is generally a smattering of feel-good stories. But doesn’t most of what you see fall under the broad categories of “doom and gloom” or “run for the hills.” (In New Mexico, that assumes, of course, that the hills are not burning at the moment – although that very thought adds another level of fear!)
In other words, there are plenty of stimuli out there designed to hook you in, to keep watching, to believe you are “being informed” when you tune in to the daily dose of media hysteria.
But when you watch the news, remember: Their goal is not to inform or educate you. It’s to lure you back, again and again. Nothing wrong with that; it’s how business works. But it’s good to understand the real agenda behind the news you are consuming.
So what does that have to do with personal finance, my stated topic here?
A lot. People translate news events into their investment portfolios in all kinds of ways. One of the more common ways is by trading any and every event. You’ll see segments on the financial news channels goading you into trading the day’s economic reports, for example. CNBC and Bloomberg will feature interviews with so-called pundits exhorting you to “play the jobs report.”
In reality, the market effect of such reports is generally short-lived, and it’s hard for the at-home trader to really understand the intricacies of what assets are moving on the news, and why. The news anchors on the financial channels are generally prohibited from trading individual assets themselves, but they have no problem prodding you to trade, trade, trade. It’s as if a person with no substance abuse habit were encouraging you to take a hit from the crack pipe, with no intention of partaking herself.
Here’s another common reaction when people get frightened, based on the news. They become persuaded that the current crop of politicians (of either party – I’m not choosing sides here, and people on both sides of the political spectrum are guilty of this) are destroying America, and we need to get our money out of the markets yesterday!
I’ve known people who sit on the sidelines out of distrust, based on the drumbeat of their political TV channel of choice. Right or left, it’s a mistake to believe that everything is headed permanently south, and that the American economy has lost its proven resilience. A strategy of hiding the money under the mattress in recent years would not only have lagged inflation, but would have had a huge opportunity cost of lost market gains.
I understand that people get spooked by large market swings, which are often initiated by news events. But volatility has always been a normal part of equity markets.
Over the long term, volatility for stocks is about 15 percent to 20 percent. It’s true that there are outlying years, such as 2008, that skew results, eradicate wealth, and cause people to be skittish.
But to maintain a portfolio that is true to the financial goals you have laid out (you have written financial goals, don’t you?), it’s important to stay the course, rebalance as needed, and make adjustments as your goals change. Panicking and going into cash or gold bullion or pork bellies is not a long-term solution, nor is manic trading every day because some TV anchor thinks you should.
Editor’s note: Kate Stalter is a financial advisor with New Mexico-based Portfolio LLC. Prior to joining the firm, she was a stock-trading coach and radio host. She is a regular columnist for TheStreet.com’s RealMoney, Forbes.com, and Morningstar Advisor Magazine. Stalter has an MBA from Northwestern University’s Kellogg School of Management. She works with financial planning clients in Los Alamos, Santa Fe, and throughout northern New Mexico.
Direct contact: firstname.lastname@example.org, Twitter: @KateStalter