If I could change one aspect of the financial industry it would be the media’s attention surrounding financial news. While it’s great that so much news is readily available for investors, far too often I see individual looking at financial journalists as if they are investment advisers and analysts. While some may have the adviser credential or background, their news coverage isn’t based on your individual situation.
When the markets get volatile, it’s hard enough to ignore the “noise” on a day-to-day basis. But once the media grabs hold of a ‘good story,’ it becomes virtually impossible. The problem with this is that the media focuses on what’s happening right now, with an eye for what will earn readers or viewers; and rarely do they try to discuss how the market event may or may not fit into a bigger picture. While there is nothing wrong with this from a reporting standpoint – that is their job, individual investors can become so overloaded with short-term news they forget about their long-term strategies and start trying to time the market, making emotional decisions based on what journalists are promoting.
I’ve looked through articles from the past few years and found a number of examples of the media focusing on the ‘right now’ and struggling to give good long-term advice. Here are a few that fit that category:
March 5th, 2009 – Wall Street: Ugly is back (CNNMoney) – This article is a wrap-up from a very poor day in the market. On this day the S&P 500 fell 4.25% and closed at its lowest level in almost 13 years. In response to this performance an analyst is quoted as saying that market pros have even less of a sense of where the bottom is. For those who don’t remember, the bottom took place just two trading days later on March 9th.
June 22, 2010 – Double dip looks doubly certain (MarketWatch) – After a disappointing 2nd quarter of the year, a survey of economists showed a growing number of them were painting a darker and darker economic picture and claiming a double-dip recession was looking more and more likely. While the risks were definitely there, we can look back now and see that the double-dip never happened.
July 1st, 2010 – Stocks: If you thought the 1st half was bad… (CNNMoney) – This article was a recap on the first half of 2010, during which the S&P 500 dropped roughly 7%. The recap pointed out some of the problems facing the economy and argued that performance for the rest of the year could be just as bad. So what happened? The S&P 500 returned 11.29% in the 3rd quarter and another 10.76% in the 4th quarter, finishing the year with a gain of just over 15%.
These articles reinforce why Smart401k focuses our recommendations on the long-term. We can’t tell you if the markets are going to go up or down tomorrow. What we can do is look at the bigger economic picture and help you figure out a risk-appropriate allocation to help make sure you are properly positioned for our long-term market expectations.
There are always going to be risks involved when you invest in the stock and bond markets and there will always be periods of volatility in the markets. But one thing remains certain – your long-term investment strategy should be based on your goals, time horizon and risk level, not what you read in the news each day.
Senior Investment Adviser
Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans. Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.smart401k.com.