Is “breaking news” killing your financial plan?
Fear is great for newspapers but is it good for your financial plan?
The financial journalists have been in their glory these last few weeks. Greece was a great headline grabber, as was the exciting reaction to the craziness by the US and global markets. It was better than football, basketball, and baseball seasons all wrapped into one. Why? Because it got people tuned in and waiting for the next “breaking news” story. It spurred lots of web clicks. It got the news sites buzzing and, ultimately, I’m sure it sold a lot of whatever was being advertised at the moment.
The fact is, all that financial “news” means absolutely nothing to the normal investor. Sure, the play-by-play changes in the stock market may make a difference to the day traders—at least for the day. And yes, the clicks on CNN’s website will make a difference to some marketing genius’s commission check. But for anyone investing for the long term, none of it matters. It’s just noise.
Carl Richards, author of The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money, gets it. He’s great at breaking down financial topics and explaining them through simple graphs and diagrams—on napkins (see above and below). Carl obviously shares my perspective on “important, global news” and its relationship to your personal financial plan. What he says here is true: there’s “very little overlap!”
When the News Kills Financial Plans
But now you may be wondering if the news doesn’t matter, what does? We all want to feel like we’re in control of our finances, and somehow listening to all that noise makes us feel like we’re doing something. “I’m paying attention!” “I’m staying informed!” And while the financial news may be a great form of entertainment, knowing the details of the Greek default, the plummeting price of Gold (yes, the 0% yield I talked about in my blog way back in July 2013 holds true), or the latest guesses on when the Fed will raise interest rates won’t help you reach your financial goals.
When It Causes You to Change Course
Instead, turn off the television, turn off the Internet, and pay attention to these 5 steps:
- Make a plan and stick to it. If it’s complicated, work with a financial planner you trust, create a plan based on your goals, and make it happen.
- Balance your savings, spending, debt, and risk. Part of your plan should include building your wealth while also managing spending and reducing both debt and risk.
- Diversify your investments. The old saying that you shouldn’t “put all your eggs is one basket” is probably more true in investing than anywhere. Diversify, diversify, diversify.
- Plan for future expenses. Don’t spend what you don’t have. It’s much better to save today for the new car you know you’ll need next year than to finance it and pay a whole lot more for what you get. For more on this, see my blog 7 Steps to Start Building Wealth Now.
- Focus on your own goals. Stop getting sucked into the latest financial news frenzy, and remember that your neighbor’s “big stock win” has nothing to do with your long-term plans. Carl Richards’s napkin says it best: “When it comes to investing, the only goal that matters is yours.”
Whatever you do, remember that journalists have no dedication—much less any fiduciary responsibility—to you, the investor. And to take a little fun out of their game, here are my big spoilers: Greece will eventually pay back at least a sizable portion of what they owe; Germany won’t stand for any less. Gold will continue to yield a big, fat 0%. And neither of these “news” items will affect your retirement outcome. But maybe (just maybe!) the Saints will be lucky enough to make it to Super Bowl 50. Now that would be some news to pay attention to!
Need to create a long-term plan based on your own financial goals? Contact me to schedule a time to meet. We can dive into your finances together and put a plan in place that works for you.