Investing Through The Noise – Distinguishing Between Good and Bad Financial News
When the news and financial media talk about financial advice, you know that there’s a lot of noise out there. One positive thing that we can all do is to learn how to ignore the financial media and noise. Instead, put in place financial strategies and systems that will help achieve your financial goals. This is the biggest problem that most people face when they are trying to build a future for themselves — they don’t know what to focus on and what steps they should be taking.
The Fear-Inducing Power of Financial News
The media does a great job of drumming up catchy headlines and emotionally triggering pieces to get the general public to watch, read or listen to the material they are putting out. Outside of a health crisis like Covid, there’s not a lot more fear-inducing material for the media to put out that gets people more worked up than financial or economic news.
The money we all subconsciously equate to food, water, and shelter. They are the basic necessities we all need to live a happy and healthy life. When there are headlines like job layoffs in the thousands, sky-high inflation making basic necessities dramatically more expensive in a short time, or stocks having large movements down, these all generate emotions of fear.
Don’t Let Dow Jones Headlines Distract You from Your Long-Term Investment Strategy
If you’re reading this, you’re likely an investor and have seen a headline that sounds something like this “Dow Jones down over 1000 points.” While this likely equates to a large drop in the broader stock market tracked by the S&P 500, a headline like that above is very irrelevant to the majority of investors out there that are most likely not invested in the Dow Jones at all. Hence, I suggest you ignore the financial media’s headlines.
Most investors are tied closer to the movements of the S&P 500. This represents around 500 of the largest publicly traded companies in the US vs the Dow Jones that are made up of only 30 companies. Headlines like that draw viewers to watch or entice people to stop scrolling and reading.
Does it make a difference for the long-term investor?
Not even the slightest! Days like that are just noise in the big picture of a long-term investment strategy and financial planning.
Short-Term Noise vs. Long-Term Investment Strategy
Short-Term Effects Of Bad News
The most recent noise coming from the financial media was about SVB and Signature Bank failures. While these are troubling and pose a risk to the stock market in the short term, in the long term this is just another headline and new event that will eventually fade as the market continues its nature to move higher over the longer period.
From the date that this blog article is published to the time many of you will read it, you will likely be asking yourself “who are SVB and Signature Bank?” The headlines last week that caused a short-term pullback of stocks were caused by the 2nd and 3rd largest banking failures in US history (SVB & Signature Bank respectively). That currently is a fact. What the headline doesn’t consider is that inflation over time has gone up, making headlines like that not comparable to bank failures throughout history. This is because they are not taking inflation into account.
For Long-Term Investors, Now Is The Time
So, what does something like this mean for long-term investors?
It’s a great opportunity to buy more or rebalance an investment portfolio. There are countless scary headlines every year that, if investors listened to them, they would never invest money. Stocks have moved higher over time despite major company bankruptcies, economic recessions, depressions, and two world wars. For those that think that this time is different and it’s time to put your money under the mattress or try timing the market, time will prove those people wrong like it always has. This too shall pass. Don’t lose sleep and stay invested!