Investors, Step Away from the News!
“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good.”
– Warren Buffett
For the first half of the year, the markets seemed fun to many investors–anytime you checked your stocks, they were usually up. Recently, however, the markets have started making some moves downward. For many, the fun has disappeared and been replaced by anxiety. Where is the market going next? What should I do? Feelings of excitement are now replaced with stress or even panic: Am I going to lose all the gains that I made?
These feelings are normal. This is what markets do: they bring out strong emotions in humans. Sometimes they bring out greed—we see that when markets make big moves to the upside. Other times, they bring out fear. Now for most investors, it’s the latter.
Our markets were actually long overdue for a correction based on history, so we may have forgotten what “normal” feels like.
Market drops are simply part of the natural cycle of the stock market. We need to expect these “corrections” and accept them as a normal part of investing in stocks. The stock market periodically drops, sometimes for a longer time in a “bear market”, but history tells us that as long as we are in it for the long term, those drops won’t matter. Per Wharton professor Jeremy Siegel in his book “Stocks for the Long Run”, stocks have returned an average of 6.5 percent to 7 percent per year after inflation over the last 200 years. So while there’s no guarantees in life, 200 years is a pretty solid track record.
So if there’s nothing out of the ordinary here with market volatility, why does it feel worse these days when the market drops? One reason may be that most of us are glued to our smartphones and computers almost 24/7. We can’t help but constantly see the news headlines.
We may turn on the financial news or visit a financial app throughout the day, looking for explanations and advice. Our devices are a great resource for up to the minute news and stock quotes, of course. But along with the actual news and facts, there’s something else. We’ll see big, bold, scary headlines showing how far the market has dropped—not saying here’s the normal correction that was long overdue. Then, they start to trot out one expert after another who tells us where the stock market is going tomorrow, next month, or next year. They all seem credible; they wear expensive suits and sound quite smart. But how accurate are they really?
Per a study by CXO Advisory Group covered in Forbes, these forecasters are, on average,less accurate than a coin toss.
Let’s think about it….how do financial news networks make money? Do they get paid based on the quality and accuracy of investment advice they offer? No, they make money from advertising. The more people watching, the more the advertisers are willing to pay. What does it take to attract more viewers? Boring long-term advice that recommends that we relax and remember that markets move up and down? No way! Instead, what sells? Drama! Viewers love drama so the more they create, the more advertising revenues are generated.
So when you turn on those channels or apps, keep that in mind. It’s not designed to give you long-term advice or calm you down. It’s designed to the do the opposite!
As we all know, no one can predict the future. One of the truly great market minds of the past was known to say this every time he was asked what he thought the market would do next:
“The market will fluctuate.”
Regardless, our feelings of fear and anxiety can be very real when the market drops. This is the time to get in touch with your financial advisor. Don’t be shy… remember these are natural human emotions. Everyone naturally feels this way. These are the times that expensive mistakes are made. Your advisor is waiting to hear from you and happy to talk you through it to help you avoid these expensive mistakes. If your advisor isn’t helpful or understanding, maybe it’s time to find a new one.
If you don’t have an advisor yet, now is the time to consider finding one, sincemost expensive mistakes by investors are made at times like these.
On the flip side, let’s look at the “silver lining” of market volatility:
- If you are putting money into the market regularly, as all of us saving for retirement should be, market drops provide us with better prices than we had earlier in the year. As in other parts of life, is it EVER bad to buy what you need on sale?
- Market volatility can provide an important reminder that we always need to be properly diversified according to our goals, our age, and other factors. If we aren’t we should find a professional to help get our investments in line with our goals and ability to tolerate financial losses.
- The volatility reminds us that we shouldn’t look to the market for short-term gains. Generally you should only have money in the market that you don’t need for awhile. If you are working with an advisor, they can help you structure something appropriate for your shorter term goals that can balance out the volatility of stocks.
So, there’s a good side to all this volatility, as long as we can avoid letting our fears get aggravated by the drama of nonstop financial news. Instead, when things seem scary, let’s take a deep breath, remember our long term strategy and step away from the news.