What If the World Isn’t Coming to an End? How the Media Affects our Financial Decisions

Recently we had a hesitant client tell us about all the reasons she was nervous about investing in the markets:

What if interest rates increase? What if they don’t?
What happens if we elect a Republican president? How about a Democrat?
What effect does global warming have on the markets?
What if we break out into cyber war?

While this client is trying hard to stay educated on the economy, there is a good chance that she has fallen victim to what we call “media-driven negativity”. At any given time, you can create a laundry list of reasons why the world is going to end. You could also create a laundry list of why the world may…continue. Keep in mind, the media tends to report negative news because “scary stories get eyeballs”*, thus attracting high advertising dollars. The pervasiveness of these negative stories makes them hard to ignore.

According to Dennis Stearns with Stearns Financial Services in Chapel Hill, N.C., “our future can realistically be thought of as 25% risks and 75% opportunities. The problem is that the 25% threat is magnified by the 24/7 media to the point where everyone believes that it is actually the 75%1.”

Fear can lead to sabotaging behaviors such as moving the majority of ones portfolio to cash for the long haul. The upside is that tucking savings safely away in cash keeps potential market volatility at bay. But what harm might this cause? While some individuals can reach their financial goals keeping all savings in cash, most cannot. Oftentimes it is important to take appropriate market risk in order to achieve investment growth over a long-term period, as well as keep up with inflation.
The media can be a very useful tool in educating yourself. Yet, in a media-driven world, how do you separate educational information from the information that is generated strictly to sell advertising dollars? Here are a couple of ideas:

  1. Look for source substantiation- where is the information coming from and how credible is this source?
  2. Be aware of “absolutes” – typically it isn’t “all or nothing”.
  3. Follow the money- who is funding this information?

Our client will eventually need to choose whether or not to let the media affect her financial decisions. When in doubt, contact your financial advisor for objective information. And remember this old phrase: “the only thing for certain is uncertainty”.


 

*“The Price Clients Pay for Worst-Case Forecasts” written by Bob Veres 8/27/2013.

 

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