You might be feeling stressed these days if you turn on MSNBC or Bloomberg or Fast Money. If you’re watching for entertainment, fine. But if you’re hoping for real financial guidance, these shows can leave you feeling panicked. Are you missing out on an opportunity? Did you invest the wrong way? Should you sell? Should you buy?
As financial advisors, the number one battle we fight is the media. Pundits need to grab attention and people are wired to respond to the negativity. So no matter what’s happening in the U.S., the media manages to tie it to the investment market in a negative way. (Can you recall the last time they proclaimed the markets would go up? I can’t!)
It’s simply the best way to get our attention — and the best way to keep people watching.
To be fair, not all of it is noise. Sometimes events do impact the market. But the question is: How do you know when — and if — you should react to the financial news?
There’s no easy answer, only what we can glean from experience.
Doing Nothing is Still Doing Something
I know what you’re thinking: These are smart people talking about this stuff! Why wouldn’t I follow their advice? The primary reason is that these are entertainment shows first and foremost. It’s a mistake to tie your own personal situation to entertainment.
But even if there were nuggets of truth buried in the hour-long broadcast, by the time you’re hearing the news, it’s simply too late to react to it. The markets are efficient and price information almost immediately. By the time the news reaches you, the shift has already occurred and you can no longer avoid the downturn — or get in on the opportunity.
Take individual stock stories. Nvidia is a great example — many people bought it, held it for a long time, and made a lot of money, proving that it’s possible to benefit from a single stock pick. But to me, that’s a little like gambling. It’s a risky move that has an equal chance of panning out either positively or negatively.
Not only do you need luck on your side, but you also have to be willing to withstand the ups and downs over time. Every peak and valley leaves you wondering, do I sell now? Do I buy now? Any investor can attest to the fact that it’s really, really hard to figure out when to get in. And it’s even harder to figure out when to get out.
That’s why we often say: The best reaction is no reaction.
Make Room for Curiosity, Not Chaos
If you are tempted to react, don’t make any changes without doing your homework first.
If you hear something that you believe could be impactful, do some extra research on it. Talk to your financial advisor and see if it applies to your specific situation.
Keep in mind, however, that it might not be the right time for you to make a change in your portfolio — especially if you’re nearing retirement age. Most people want stability as they head into retirement. Ideally their portfolio is already well-diversified and invested for the long term. Often this means they have limited exposure to the stock market. That’s why it’s important to understand your exposure to these factors before you make a change.
But I get the inclination to throw caution to the wind. Personally, when someone tells me no, I go ahead and do it anyway! Sometimes we help clients carve out a “fun money” account — maybe $50,000 out of a $2 million portfolio. It gives them room to try something new without jeopardizing their overall financial position. We can work together to incorporate these risks into the portfolio and manage them. If a position has gotten too big, for example, we can see if there are any opportunities to harvest losses.
Create A Portfolio Built For The Long Term
Having a plan for your money can help ensure you sleep comfortably at night. That means having a balanced and diversified portfolio that provides solid returns with an appropriate amount of risk.
A balanced, diversified portfolio allows you to ride out the ups and downs of the market, usually with a positive outcome. There will never be a 100% guarantee for positive long-term performance, but most likely, when the markets go down, the returns will revert to the average. The hard part is not knowing when that will occur, and it might take a while. But stay the course and you will most likely experience a positive return over time.
With this approach, you’re controlling the things you can control and mitigating your risk.
If you’d like to talk with us about your portfolio — or get started building one for the long term — get in touch! We’d love to help you develop a financial strategy that maximizes your returns and minimizes the anxiety associated with market fluctuations.
