Author: Clint Camua
You can’t always tune out the news. But as an investor, it’s worthwhile to keep the headlines in perspective—especially when stock market volatility confronts you with a nonstop barrage of stories, statistics, and opinions that make you think the sky is falling.
To avoid making potentially costly and unnecessary moves with your portfolio, step back and consider these five things to help ensure you’re getting the real picture.
1. Recognize the Real Media Bias of Market Volatility
As investors, understanding how a business makes its money is fundamental to the decision-making process. That being the case, it’s important to remember that media companies serving up a daily dose of market mayhem make their money by capturing attention.
What strategy does the typical successful media source employ? They appeal to our emotional instincts instead of targeting the rational part of our minds. Whether it’s a 20-car pileup on the interstate or a sudden drop in the market before the closing bell, negative headlines help drive positive bottom-line results for the media companies that broadcast them.
Remember to take the news with a grain of salt. Avoid making emotionally charged decisions to your portfolio that you may later regret.
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2. Balance the Real Risk Versus Headline Risk
Although the news might be known to sensationalize a story or two, it shouldn’t be ignored in its entirety. For the best results, weigh the short-term risks conveyed in headlines driven by today’s 24-hour news cycle against the actual risks facing your portfolio, which may have a time horizon extending to many years or even decades.
Are things really as dire as they sound? Are the events in the news affecting the actual economy? Or are they merely generating web clicks, viewers, and subscriptions? Remember how short-lived most news is—and how long-term your financial goals are in comparison.
3. Get the Real Perspective: Percentage vs. Points
If you based your expectations about market performance on the news, you might very well believe that the sky actually is crashing down. With all the headlines concerning rising inflation, ongoing supply chain challenges, labor shortages, and even nuclear war, it would seem that the market must be in trouble. And for those who have been investing since the days when a 200-point drop in the Dow was huge, recent multi-hundred-point swings would seem to reinforce that notion.
But here’s the thing: At today’s much higher stock market levels, a 200-point drop is less than one percent. In fact, for all the headline pyrotechnics over the past few years, the S&P 500, a commonly referenced benchmark for the U.S. large-cap market, is still up more than 40 percent over the last five years.
4. Understand the Real Plan
Review your own financial plan, and ask yourself how much it’s actually affected by the events of the day—both headline news and market gyrations. While you’re at it, ask yourself how many of those events are in any way within your control.
Most likely, you’ll recognize that the impact of transitory events on the strategy designed for long-term goals is negligible. In fact, the attempt to anticipate, influence, or effectively modify your financial planning in response to that steady flow of news is likely to be unproductive at best—and devastating at worst.
5. Consider the Real Spectrum of Information
When strategic fine-tuning of your portfolio is indicated, it won’t be triggered by the headlines that typically dominate the daily news. Strategic decisions should always be based on comprehensive knowledge of the full range of relevant data.
Our advisors are always monitoring the headlines just like you are. However, we also monitor many other things that the mainstream headlines do not cover. These include but are not limited to leading economic indicators, the path of interest rates, wages, and inflation—both domestically and globally.
One of the best antidotes to emotion-based decisions is data. Not just data provided by news headlines and articles, but data backed by research that reveals truths hiding beneath the surface.
For a closer look at the types of things EP Wealth considers when helping you develop your plan, execute it, and stay on course, we invite you to read our Quarterly Review and Outlook.
For more information on the financial planning services we offer, visit our website and please contact me for a detailed discussion.
Disclosures:
EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. EPWA has used its best efforts to verify the data included here. The information presented was obtained from sources deemed to be reliable. However, EPWA cannot guarantee the accuracy or completeness of the information offered. All expressions of opinion are of the author of this blog and subject to change without notice.
Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
Hiring or working with an investment advisor or financial planner and/or establishing a financial plan do not guarantee investment success, and do not ensure that a client or prospective client will experience a higher level of performance or results. All investment and financial planning strategies are subject to profit or loss. The risk of investment loss can never be eliminated.