In the news:
“Oct. 15 (Bloomberg) -- The S&P 500 slid as much as 2.2 percent in early trading, erasing gains for the year, but trimmed declines enough to return the index to positive territory on the year to date.”
What’s the underlying message here?
If you’re scratching your head and wondering whether there is an underlying message, you’re on the right track. Interpreted literally: The market went down quite a bit. Then it recovered to a point.
It reminds me of one of those spoof plaques that read: “On this site in 1897, nothing happened.” (You can actually order one of these on Amazon.)
Throughout the rest of Bloomberg’s report (or any number of similar reports out there), you’ll hear a bounty of seemingly reasoned explanations: The U.S. is experiencing “disappointing retail sales,” “not enough inflation,” and “a second case of Ebola.” Europe is “potentially headed for a recession.” You’ll also hear analyses of oil prices and rates of change and macro backdrops.
It all sounds informed and important to your investing. But if you’re wise to the tricks of the financial media trade, you’ll detect the sleight of hand it takes to convince you that focusing on these particular events could have helped predict what happened in the market or will help determine what is going to happen there next.
Stock market declines are painful when they impact the near-term value of your investment portfolio. It really hurts. But rather than reacting to bad market news, try to harness it to the higher purpose of achieving your personal financial goals. Remember, market volatility, in all its nerve-wracking forms, is one of the key factors that drive the long-term expected returns you’re seeking to capture by investing. With high volatility comes higher expected future returns. With low volatility, you get to go about your day more calmly, but you must also accept diminished expectations about your future net worth.
So, here is the real message: You cannot manage global events, but you can manage your personal portfolio with a great investment advisor.
- The right advisor can help you consider – or reconsider – how much market risk to build into your investments in pursuit of your desired goals.
- Good advisory firms (like ours, Vestory) employ sensible, evidence-based strategies such as asset allocation and global diversification to help manage the market risks that you do take on.
- Low-cost, fee-only advisors can help you minimize return-dragging costs and mistakes.
Being driven by the news is one of the reasons that so few investors end up successfully managing their own portfolios. At some point the volatility and uncertainty become more than you’re prepared to manage. The right investment advisor will work with you on sensible ways to adjust your holdings to account for volatility and can help you actually see the “forest” through all of those scary looking “trees.”
If, at some point, you plan to tune into the breaking financial news, think of that “nothing happened” plaque. At least with respect to your investing, it’s probably true.