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The Worst Thing That Ever Happened To Your Portfolio

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The Worst Thing That Ever Happened To Your Portfolio

For years, there’s been a horrible trend which has prevented more people from achieving their financial goals than any other factor. It’s something so catastrophic I feel forced to write about it to bring attention to the masses. What is it, you ask? 

THE MEDIA!

That’s right, the media and the 24/7 constant news cycle. I have single handedly seen the media ruin more portfolios than everything else combined.

The irony here is we assume the media is helpful to us as investors; it informs us on (local or worldwide) daily activity.  Unfortunately, it is having a completely opposite effect. As the saying goes: “A little bit of information is dangerous.”  The whole matter concerns me greatly.

The other day my mother forwarded me a message from my uncle (who got it sent from someone else). It was a news article stating a “40% drop in the market was imminent.”  This “news” elicits panic; I see it almost every day!  Clients, relatives, or friends call me frequently to say, “Andrew, I was watching the news and….”

The second part of that sentence is usually the death knell.

A social experiment.

Let’s do a social experiment.  Below are three article headlines from well-respected news sources, but I’ll leave the year out:

  1. Ron Paul doubles down on his call of a 50% chance for a crash.
  2. Warren Buffett’s advice for a stock market crash in 20##.
  3. Why worry: 7 troubling sings for the stock market.

How do you feel right now?  Are you ready to put additional money into the stock market?  Or, are you more likely to take money out in the hopes of avoiding some correction?

Now, let’s try it in reverse:

  1. Why the stock market keeps going up, up, up.

Does this headline make you want to invest more money?  Likely the answer is “no.”  The reason I only listed one article (not three) is because I was on the 10th page of the Google search.  That one was all I found.

Fear and bad news draw people’s attention; it’s what sells.  As proof, watch the evening news tonight. Observe how much is focused on negative story lines over positive stories.  I always wanted to start a news station called “Good News.”  It would focus on nothing but positive and heartwarming stories.  Sadly, it never got out of the dream stage (although I still do love the idea).

Anyway, the year referenced above was 2017 – one of the least volatile in the history of the stock market!  That year the S&P 500 was up 21.83%, the EAFE was up 25.03%, and emerging markets were up 37.28%!  Yet, the overriding theme (if you did nothing but watch the 24/7 news cycle) was negative.

The behavior finance term for this is “Herd Mentality.”  It’s a bias we fall victim to when influenced by the masses.  When everyone is screaming for Armageddon (because it sells), we almost can’t help but let it influence our decisions.

Keeping it in perspective.

Most of us plan on a nice 30 year retirement.  Looking at all the news and world events that have happened over the past 30, we would be hard pressed to find any period where something in the news wasn’t scaring us out of the market. Today (more than ever), we are bombarded by these stories so much we are almost forced into a sense of submission.

If we closed our eyes 30 years ago and woke up today, we’d have seen the S&P 500 go from 250 points to over 2,700 points (not including reinvested dividends). That is a whopping 1,080% total return, despite what the talking heads would lead us to believe.

Related: Why All This Fuss About Interest Rates?

What to do?

I certainly don’t expect any of us to give up news or social media. There is certainly a lot of good which comes from these sources. In addition, some of this information is quite valuable. However, take your financial advice from someone who you know and trust, not the media.

Someone who understands your situation intimately and can carefully construct a portfolio for you — a portfolio that is sensitive to the drivers in the markets, but doesn’t let the media dictate their outcome. This is what financial planners do for a living. It’s the only way I know how to combat all of those media pressures.

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