Investing in the age of relentless media
April 27, 2017
To say investing in the current media saturated environment is difficult is an understatement. The news flow is overwhelming and mostly negative. We get it from everywhere: print, TV, radio, the Internet, phones, Tablets. And it's a drumbeat of drama designed to keep the reader or listener's attention so he or she won't change the channel or stop reading. This 24-7 coverage promotes a general sense of unease about the state of the country and the world. When all you hear is negative and alarming news, it is no wonder that the average person perceives a sense of uncertainty that leads to the perception that things are much worse than they are. There is just so much data and information that humans have difficulty making sense of it.
What complicates the situation even more is that most of the information flow doesn't really affect the markets. It is not unusual to go through a period of scary, disconcerting news, yet the market keeps going higher. Or suddenly, there's a sell-off on little or no news at all, as financial pundits struggle to manufacture an explanation. If the market's down, the media will trot out any number of bearish commentators, all predicting more downside. If stock prices are up, we'll see an array of bullish analysts, who are confident of more upside. Often, these individuals are permabears or permabulls, always seeing the glass as half full or half empty.
These periods of increased market volatility and uncertainty can be unsettling for investors. However, emotional decisions in response to short term events can have long-lasting implications. In fact, making emotionally-based decisions in response to short-term market events is one of the fastest ways to derail your long-term investment strategy. That's because it's impossible to accurately time the financial markets. In the short run, market's often make no sense. Trying to make sense of these short term fluctuations is futile. And too many investors tend to opt out at the worst time, when markets are falling, and buy back in at higher prices when markets begin to rise.
A time-tested approach to managing investments through periods of uncertainty is to focus on asset allocation. Research has shown that proper asset allocation is the key to consistent long term returns. Proper diversification among the various asset classes-stocks, bonds, cash, commodities will make it much easier to withstand periods of volatility and prevent investment mistakes that derail a long term plan. Emotional, knee-jerk decisions will eventually derail your long term investment plan and reduce your returns.
D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management may be reached at 775-673-1100/775-423-8007 or at Petersonwm.com.