BREAKING NEWS: This is Normal…
Not exactly a catchy, attention grabbing headline is it? Traditionally, BREAKING NEWS headlines have implied something out of the ordinary or unexpected. But in 2016, almost anything can be breaking news, including the things that should be no surprise to us. The headline above could be completely wrong. Maybe there’s an asteroid heading right for us that I just don’t know about, or maybe I’m just unaware that the Sun is supposed to randomly burn out in the next few months. If that’s the case, your investments aren’t going to do you any good anyway. I’ve seen the movies. But in the far-off chance that those things DON’T happen any time soon, I think it might be good for us to cover something EVERY long term investor must understand. The Market goes up AND down. And it happens ALL the time. So often in fact that at some point investors saving for retirement owe it to themselves to stop paying so much attention to [insert major news network].
I can’t tell you how many times I’ve seen something similar to these following headlines over the years:
“Expert: Crash is Coming, Time to Sell”
“2008 All Over Again?: Analysts Think So”
“Dow Sheds 300: Pros Say Get Out!”
And the very next day…
“Dow Rebounds 350 Points: Bull Market Marches On”
“Analysts: This Year Could Be the Best Year in Decades for Stocks”
“Risk On: Never a Better Time to Buy!”
You get the point. In a world where we now have a 24-hour news cycle, the very existence of any news outlet is highly dependent upon one thing: RATINGS. There is simply nothing better for ratings than fear and panic, which is why those first three headlines will catch more attention than the last three. It’s also why you will never hear what I’m about to tell you by watching your TV: Negativity is the lifeblood of the news.
Why is this? Well, unfortunately negative events have a greater impact on our psychology than neutral or positive events. This is often referred to as negativity bias and it’s just another annoying and unavoidable part of our human nature. It’s why we tend to pay more attention to a celebrity’s life spiraling out of control than the daily acts of heroism displayed by any of our local fire departments. In the world of finance, it’s why we’re inclined to tune in on the down days and ignore the up days. The media knows this. They thrive on it. It’s also the reason that very simple facts that would likely relieve that fear for the average long-term investor are often left out of the story.
For example, how about the fact that in the last 115 years we’ve seen a decline in stocks of 10% or more on average once every single year? Or the fact that in that same span, we’ve averaged three declines of 5% or more every single year? What about the most comforting fact of all – that there has NEVER been a single time in US history where the stock market has dropped and not recovered. Not one! Does that guarantee that it will never happen? Absolutely not, but I think we would have far bigger concerns than our 401(k) accounts if we saw the first ever permanent crash. When the stock market is falling, viewers are more likely to stay tuned and that is great for one thing. RATINGS. Historical context and comforting facts? Not so good.
Let’s be very clear on something here. We’ve had a pretty rough start to 2016 with regard to stocks. Is it possible that we are in for a rough year? Absolutely. No one can deny that. We also shouldn’t deny that there is a very important role for financial news, but that role has little to do with the average investor saving for a far-off goal like retirement. The issue arises when the message is being consumed by the wrong audience. Unless you’re a professional trader trying to interpret market data every second of your day, any news related to the day-to-day movements in the stock market is irrelevant to you. Investing for your retirement is about retirement. If anything, most investors should embrace the volatility, since the market is really just going on sale. It’s not about today, tomorrow, or even five years from now. And if you ARE that close to retirement, you shouldn’t be heavily invested in stocks anyway.
It might be the single greatest challenge to an investor, but it may also be what ultimately saves you from sabotaging your own future. It’s time to tune out social media and turn off the TV. Your future self will thank you.