Beyond the Headlines: The Realities of Investing, Market Timing, and Financial Peace
By Bryan Lee, CFP®, MBA
Financial headlines are often negative. But is the news really always that grim?
It’s crucial to take a step back and uncover what the media doesn’t tell you about investing and financial planning. After all, timing the market with consistent success is nearly impossible. What can help you is a sound financial plan and a trusted financial advisor acting as your guide through the noise and uncertainties of today’s financial landscape.
Why Bad News Sells
The media thrives on sensational stories and polarized perspectives, partly due to the repeal of the Fairness Doctrine in the 1980s and the “entertainmentification” of the news. News outlets know that people are more likely to click on articles and tune into broadcasts that feature dramatic headlines and negative stories, and they are financially incentivized to provide that content. This is known as the “negativity bias,” which occurs when people pay more attention to negative information than positive information. This is a well-documented psychological phenomenon, and as a result, the media tends to focus on bad news despite the many ethical and well-intentioned journalists working to present balanced perspectives—even when the good news may be just as important.
In the context of investing and financial planning, bad news can be particularly damaging. When people hear about stock market crashes, economic downturns, and other negative events, they may become fearful and anxious about investing their money. This can lead them to make impulsive decisions, such as selling their investments during a market correction or avoiding the market altogether “until it is safe again” (which usually means a market that has recently gone up).
What the Media Doesn’t Tell You
Despite the constant barrage of bad news, investing and financial planning are still powerful tools for building long-term wealth. Here are a few things to keep in mind that usually don’t make the front-page news.
1. Investing Is a Long-Term Strategy
Investing is not a get-rich-quick scheme; it’s a long-term strategy that requires patience and discipline. The stock market can be volatile in the short term, and it’s not uncommon for there to be periods of losses, slow growth, and even recessions. Over the long term, however, the stock market has historically provided strong returns for investors. For example, the 100-year annual average return of the S&P 500 Index is 10.345%. That’s pretty impressive considering the economic volatility the market has experienced over the last 100 years!
Just remember that panic selling at the whims of bad news from the media is a quick way to miss out on the potential upside that comes from down markets. While there will always be short-term fluctuations, over the long term, investing in the stock market has proven to be a reliable way to build wealth as long as you are investing in a diversified way that makes sense for your unique risk tolerance, time horizon, and goals.
2. Diversification Is Key
One of the best ways to manage risk in your investment portfolio is through diversification and setting your investing timing on autopilot. By investing in a mix of thousands of stocks, bonds, and other assets, you can spread your risk and potentially minimize losses when individual companies struggle or fail. Keeping your portfolio diversified is another way to avoid “fad” investments or trends that may be overly hyped by the media.
For example, if the media is reporting on a new technology that is poised to revolutionize an industry (or a recent poor performer they think you should sell), investors may rush to either buy or sell that one company. But if the media’s predictions don’t come to pass, investors may suffer significant losses or miss out on significant gains. By diversifying your investments across different sectors and asset classes, you can avoid becoming overly focused on a single trend or fad and reduce the risk in your portfolio.
Setting up automatic investments having the same amount come out of your paycheck each month and go into your 401(k) or other accounts allows you to invest without worrying about the news and whether it is a “good” time to invest. It also helps in buying more shares when stock prices are low and fewer shares when prices are higher. Studies have shown that this methodical approach of paying yourself first and automatically investing will bring you more wealth than trying to time the market (and you might even have less stress since you don’t focus on the negative media headlines).
3. You Can’t Time the Market
The media would have you believe that if only you had been more informed, you would have been able to avoid those temporary losses in your portfolio. If only you listened to more commentators, read more magazines, or listened to the latest financial podcast, you would be able to successfully time the market. But what the media won’t tell you is that you can’t time the market because no one can. Buying and selling investments based on short-term market fluctuations is a losing game. No one can consistently predict what the market will do—no matter how much bad news they watch. Even professional investors and fund managers, who have access to extensive research and analysis, struggle to consistently predict the moves of the market and rarely beat the market consistently with even all of their economic information at hand.
Instead of trying to time the market, a more effective strategy is to focus on long-term investing and diversification. By investing in a diversified portfolio of assets that is appropriate for your goals, objectives, time horizon, and risk tolerance, you can more effectively weather the inevitable volatility that comes with investing. By staying committed to your investment strategy through market ups and downs, you can avoid the temptation to make impulsive decisions based on short-term market fluctuations.
4. Financial Planning Can Help You Reach Your Goals
Financial planning is about more than just investing. It’s about setting clear financial goals and creating a plan to achieve them. An experienced financial planner can help you assess your current financial situation, identify areas for improvement, and create a plan that takes into account your unique circumstances and goals.
Financial planning is a critical tool for working toward your long-term financial goals, and it can provide a helpful road map in the face of the constant onslaught of negative news and hype that the media often focuses on. By creating a comprehensive financial plan, you can establish a guide for achieving your goals—regardless of what’s happening in the news or the markets.
A well-crafted financial plan considers factors such as your income, expenses, savings, investments, and debt, and helps you develop a strategy for pursuing your long-term financial goals and avoid making impulsive investment decisions. Talking about the benefits of financial planning may not generate as many views as talking about the latest financial crisis, but it is a great way to take control of your financial future and make progress toward your goals, even in a “bad news sells” environment.
How We Can Help
In a world where bad news often grabs the spotlight, remember that investing is a long-term journey, not a short-term sprint. Comprehensive financial planning can help you navigate the ever-changing financial landscape and provide a road map for realizing your goals.
If you’re ready to embrace a more balanced and informed approach to investing and financial planning, we at Strategic Financial Planning are here to help. Call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit!
About Bryan
Bryan Lee is the founder and president of Strategic Financial Planning, Inc., an independent, fee-only financial advisory firm. With more than 27 years of industry experience, Bryan uses a unique client-first financial life planning approach and process to help his clients get the most out of life. Bryan earned his Bachelor of Business Administration in finance and his MBA in international finance from the University of North Texas. He is also a CERTIFIED FINANCIAL PLANNER™ professional.
Bryan is actively involved in his community and industry and has served on the boards of several associations and charities, including the Dallas/Fort Worth chapter of the Financial Planning Association, the National Association of Personal Financial Advisors, Family Services of Plano, the CITY House, and the Journal of Financial Planning. Bryan has been featured in local and national media, including The Wall Street Journal, Investors Business Daily, CNNfn, USA Today, SmartMoney, Kiplinger’s Personal Finance, Financial Planning Magazine, The Dallas Morning News, and Dow Jones Newswires. And, he has been recognized as a Five Star Wealth Manager and one of Dallas’s Best Financial Planners in D Magazine every year since its inception and recently as a Top Wealth Manager. To learn more about Bryan, connect with him on LinkedIn.