by James Wilson
The cacophony of financial headlines has exploded over the past decade. Prior to the ubiquitous presence of smartphones and other electronic devices, financial news consisted of a couple pages in the newspaper or a few minutes on the news. Today, financial themes permeate every form of media 24/7. This creates a difficult backdrop for investors trying to make good financial decisions. The clamor of noise makes maintaining discipline a challenge.
Most of the daily messages from the financial media are written to stir anxiety and create questions about the future. Are stocks overvalued? Will oil prices collapse? Is the national debt going to explode? An endless stream of questions like these bombard our senses all day, every day.
We advise clients to remember that the source for these stories , the cable news stations, papers and internet services, all have one thing in common…they are selling advertising. The more eyeballs they can attract, the more money they can charge for advertising. For the main, almost everything that you see or hear in these venues has nothing to do with you or your financial future…unless you react.
The cycle goes like this: Headlines create fear; this fear causes you to react; and when you react, you often make poor decisions.
Think about the local television weather forecaster and how many folks cling to every word they say. Do they really know what the weather will be tomorrow? In reality, the most likely weather tomorrow is roughly what the actual weather was today. I was thinking about this recently while in beautiful Southern California for a wedding. Even with the typical sunny 75 degree days and cool 55 degree evenings, the weather forecaster always tried to inject some element of uncertainty into the mix. Perhaps there would be some wind or a stray rain shower. Without some suspense, nobody watches and the advertisers disappear.
None of us like uncertainty, so we search for something, somewhere that can eliminate this risk and restore us to the harmony of certitude. Well, such a place doesn’t exist in the real world but you can take steps to improve your odds of achieving your most important life goals. Risk, in all of its forms, can’t be eliminated, but it can be transformed so that your decisions mesh with the right level of risk.
Just like installing a new app on your phone or tablet, you need to install a framework for how you make financial decisions. This framework should set out your primary long term financial goals and the discipline, (saving and investing), that will be needed along the way. Visualize exactly what you hope your financial future will be in as much detail as possible. Don’t skip this step. It is crucial that you can “see” your future as this will help inoculate you against the onslaught of the daily headlines. Without being able to imagine your future, you can quickly fall into the “poor decisions” trap outlined earlier.
With more than three decades of experience advising successful individuals of all types and ages, I believe that most share two characteristics. First, even if it is not expressed overtly, fear is core motivation for seeking help. Fear that they won’t have enough money in retirement, and fear of the stock market usually top the list. Second, the status quo is often a serious stranglehold on progress. Breaking through this inertia is usually a very difficult, but necessary first step.
The sad truth is that most individuals, even individuals that are successful at earning high incomes, will fail at preparing themselves for the future. Why? Because it is next to impossible to do this alone. From the time of Herbert Hoover forward, Americans have taken pride in being rugged individualists. Combine this with a generally poor understanding of personal finance and you have a very toxic brew.
The most important single step that you can take towards a secure future doesn’t reside in the markets at all, but instead it resides in you. Avoid the “headlines trap”, decrease your emotional reactivity to all the news of the day, and continue to paint the picture of your ideal future. If you need help, and you will, find a fiduciary advisor to provide ongoing behavioral coaching. You and your family will be glad you did.
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