Nonstop news has continually inundated investors with information that might affect their investment performance.
Rather than improving decision-making, too much information makes logical and rational investment decisions harder.
It’s difficult to sort through a mountain of information to determine what is accurate and relevant to you.
Most media outlets and their featured financial experts want to engage, excite and entertain you to hold your attention. They need a compelling story to obtain and keep your interest.
Most news stories are based on short-term current events. This objective conflicts with the long-term goals of most investors. Stories on common-sense advice to meet long-term investment goals aren’t headline news.
Investors tend to react emotionally to bad news, triggering greater worry, anxiety and concern.
Reacting emotionally to news stories is a common mistake.
Investors often overreact to negative information, wanting to take action and feel as though we are in control of the situation.
Negative information feeds a natural tendency to avoid risk. The pain of losing money is greater than the joy of making money. It’s common to overreact based on the fear of losing money, perhaps triggered by bad news.
Be proactive — rather than reactive — to avoid emotional overreaction to negative information. Take a breath and don’t make a move in the heat of the moment.
A long-term perspective is best to combat emotional reactions to bad news or market volatility.
Create and maintain a long-term financial plan that, with exception of annual rebalancing, only changes in relation to your long-term goals.
Don’t deviate from your plan based on current events or short-term market fluctuations.
News is based on today’s event, not on what will influences your portfolio in the long run.
Understand risk tolerance and create a portfolio with appropriate risk for your goals and temperament.
The stock market will have years with negative returns, and your portfolio should be structured to support your lifestyle and income needs when this occurs.
Find the right balance that will enable you to stay the course, in all market conditions. Emotionally prepare yourself in advance to deal with the stress of a down market.
Don’t stop watching and reading news, but filter the information based on your financial situation.
Most information that impacts long-term investment success is consistent and boring — and not big news.
Jane Young, a fee-only certified financial planner, can be reached at email@example.com.