Tune Out the Talking Heads

Jul 2016


As I write this the Dow Jones Industrial Average and the S&P 500 are at near record highs. It is amazing how fast things change in today’s world. A few weeks ago if you listened to the talking heads you would have thought that because of Brexit the financial markets were on the verge of collapse. Not surprisingly, the talking heads were wrong and the market did not collapse. After the initial volatility driven by fear, the markets rallied and over a very short time regained their losses and have moved into record territory.

It was a few years ago that the buzz was about sequestration. Sequestration was a budget deal that the children in Washington reached that basically called for automatic spending cuts if certain mileposts were not met. As sequestration was about to take effect, once again the talking heads dominated the airwaves talking doom and gloom and the potential collapse of the American economy. Not surprisingly, they were wrong and again, after initial volatility based upon fear, the markets once again regained their strength.

Go back a few years ago when the United States lost its AAA credit rating, the talking heads were out in force predicting major problems for the U.S. and world economies, including rising interest rates. Once again, the talking heads were wrong and after an initial downturn in the markets, based upon fear, the markets once again regained its strength. As a side note, interest rates did not rise; in fact, they continued to fall.

I think you see a trend here and that is whenever there is a major event the airways are filled with doom and gloomers predicting all sorts of catastrophic events for the U.S. and world economies. What is also the norm is that their predictions are generally wrong. Something that is somewhat surprising is that no one ever holds them accountable. You would think that some of these so called experts would be taken off the air considering how often they are wrong. Yet, come the next major event, they’ll be out there in force with their doom and gloom predictions.

No, I don’t see life through rose-colored glasses; I recognize that we live in a volatile world and that it hurts when portfolios move in the wrong direction. However, that is the cost of being an investor. I wish there was a way to get a fair rate of return without the volatility; unfortunately, it doesn’t exist. If you invest in things such as CDs and fixed annuities, you may think you’re investing risk free, but you are not. In fact, you’re taking a substantial amount of risk because even though there are not principal fluctuations, the returns you are earning do not keep up with taxes and the increased cost of living, which will cause you severe problems down the road. Keep in mind a $100 today does not buy what a $100 bought ten years ago.

Patience is a virtue that too many investors don’t have; however, it is important for investors and it is a key to success. The next time we have an event that brings out the talking heads, my advice, tune them out.

Good luck!

Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at -.