By Michael Vaughn, CFP®
In our modern, high-speed society, the media plays an essential role in updating us on what’s happening in the world and the economy. Yet, with numerous conflicting sources, ranging from local news to online platforms, it might seem like we’re always inundated with information. It can be hard to sift through the noise and uncover the actual truth.
When it comes to handling your investments and finances, it’s critical to realize that the media often exaggerates negative news and may not always provide accurate information. In this guide, we’ll dive into why bad news gets attention and share important insights about investing and financial planning that go beyond the surface.
Why Bad News Sells
The media thrives on sensational stories. News outlets know that people are more likely to click on articles and tune into broadcasts that feature dramatic headlines and negative stories. 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—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 at the bottom of a market cycle or avoiding the market altogether.
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.
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 way that makes sense for your unique risk tolerance and time horizon.
Diversification Is Key
One of the best ways to manage risk in your investment portfolio is through diversification. By investing in a mix of stocks, bonds, and other assets, you can spread your risk and potentially minimize losses during market downturns. 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.
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.
You Can’t Predict the Market
At any given time there are market “experts” that say the market is going to drop precipitously; and yet others that say the market is heading to the sky—even though these “experts” are looking at the exact same data. But what the media won’t tell you is that no one can accurately predict the future. Buying and selling investments based on short-term market fluctuations is a losing game. No one can consistently predict what the market will do—regardless of economic data, market action, or political intrigue. These professional investors and fund managers, even with access to extensive research and analysis, struggle to consistently predict the moves of the market.
Instead of trying to predict the market, a more effective strategy is to focus on long-term investing and diversification. By investing in a diversified portfolio of assets, you can reduce risk and maximize returns over the long run. And 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.
Uncover the Truth and Meet Your Goals
While bad news might catch attention, it’s wise to approach it with a mindful eye. At Pinnacle Family Advisors, we understand that smart investing and a strong financial plan are keys to a prosperous future. We’re committed to guiding you through media noise and preventing the typical investing mistakes.
With a focus on the long run, we’re here to assist you in reaching your financial goals and creating a promising future for you and your loved ones. If you’re yet to partner with an advisor supporting you in this journey, schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar.
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President at Pinnacle Family Advisors (PFA) with 22 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.