The following is adapted from Stress-Free Money.
It’s 6:32 a.m. on a Tuesday morning, yet the headline article on CNBC is already describing the day in the markets: “The markets were up today based on increased optimism that a trade deal with China…blah blah blah.”
For the first quarter of 2022, the Voss Value Fund returned -5.5% net of fees and expenses compared to a -7.5% total return for the Russell 2000 and a -4.6% total return for the S&P 500. According to a copy of the firm’s first-quarter letter to investors, a copy of which ValueWalk has been able Read More
Let’s think about this situation: at that point, the markets had literally been open for an entire two minutes! Did we really need an article describing the entire day’s events, how much the market moved, and why, as if the day were already over? How would this information help you?
This is what I call "financial fast food," and far too often, I have clients come into my office with anxiety written all over their faces. They’ve been on a steady diet of this sensationalistic financial news media. It’s my job and privilege to help them breathe a little easier, but first thing first, they have to start ignoring the financial fast food.
Fast food is popular because it’s convenient, it’s cheap, and the taste can be addictive. But the real cost of eating fast food never appears on the menu. Here’s why the constant glut of financial news can be devastating, not only to your wallet, but also to your overall quality of life.
Fast-Food Distracts from Your Goals
You may already have alert notifications set up on your phone to help you feel like you’re staying “informed,” but does the financial entertainment news know what your personal long-term goals are? Is the investment advice or general financial guidance based specifically on your circumstances? Make no mistake: the financial entertainment news media is your enemy, not your friend. If you let it, such media will distract you from your goals and destroy your ability to differentiate what is important from what is not.
In the midst of the COVID-19 health pandemic, panic and volatility (as measured by VIX) reached all-time highs, worse than the Great Depression, Black Monday in 1987, the tech bubble, September 11 and the Great Recession caused by subprime loans in 2007–2009.
Many believe that the reason the markets dropped so quickly and so frantically during this time is because of the instant nature of news media consumption. The frightening news headlines are compounded with an estimated three billion people on social media every day and the panic spreads faster than ever before. The news anchors are looking for the most extreme and drastic pictures or videos available for their stories.
You need only to examine the incentives involved to see why it works this way: the shows and online media make profits based on viewers. They need your attention to make money, and they only get your attention with extremely dramatic stories!
If we don’t turn off the TV and navigate away from the financial news sites, we’re very likely to get caught up in the fear or greed and emotional hype of the day. Believing the talking heads can somehow predict the future may cause you to question your financial plan and long-term investment strategy. You’ll start worrying you’ve made bad decisions, or you may feel FOMO tugging at you to buy the next “investment of the day” being hyped in the media. Letting emotions cloud your investment strategy is a clear recipe for failure.
Financial Fast Food Offers Baseless Predictions
Not only is financial news all over your smartphone, but it comes through social media posts, blogs, emailed newsletters, and on the covers of business magazines proudly forecasting “the eight funds you must buy this year!” or the “ten stocks you don’t want to miss!”
How do those predictions actually work out, though? Who evaluates the past recommendations when they’re publishing a new list every month, every year, or on some financial TV shows, every single day? Who wants to miss out on a big winner and be stuck on the outside looking in? Nobody, of course.
In point of fact, though, these predictions are based on nothing and don’t yield results. For instance, consider a TIME magazine cover from March 2009. It shows a pair of hands gripping a fraying rope, with the headline “Holding on for Dear Life: The Economy and You.” The point of the issue was the death of stocks and how it was a terrible time to invest.
The truth, though, was just the opposite. If you’d ignored the financial fast food and instead invested money back then, you would have realized more than a 500 percent return as of this writing, based on the S&P 500, quintupling your money.
Technology is incredible, but the information overload has made most of us worse at making financial decisions. Beware of fake financial fortune tellers. All of these are symptoms of “it’s easy to predict what’s about to happen” or the “next-shiny-thing” syndrome. The excitement and hype perpetuated by the news media are both addicting and harmful to your financial health. Once the addiction to financial fast food traps you, it’s hard to extricate yourself.
Don’t Get Caught Up
One of the great transformations to see in a person’s financial life is when they finally break free from the addiction to checking the markets daily and getting caught up in the headline clickbait alerts from the financial media. Instead of letting their emotions ride roughshod, they follow their values and goals-based, rational, long-term financial blueprint. Doing so represents financial intelligence and maturity.
I’ve had many people tell me something like the following once they’ve stopped consuming financial fast food: “I don’t even worry about it anymore. It feels like such a relief not to be attached to the fear mongering. My anxiety about the economy is down, and I’m more focused on what I can do to help my financial plan become a success.”
It’s a process, though. I get it: you almost can’t escape the hype. Not paying attention to it takes real effort and discipline. But that effort is worth it if you want solid, healthy, and stress-free money.
For more advice on financial fast food, you can find Stress-Free Money on Amazon.
About the Author
Chad Willardson, CRPC®, AWMA® is the president and founder of Pacific Capital, a fiduciary wealth advisory firm he started in 2011 after nine years of climbing the ranks as an investment advisor at Merrill Lynch. Currently, Chad also manages a $350 million investment portfolio as the elected city treasurer in his community. He created and trademarked The Financial Life Inspection®, a unique process to remove the stress people feel about their money. He’s been featured in the Wall Street Journal, Forbes, Inc., U.S. News & World Report, Investment News, Entrepreneur, and Financial Advisor. Chad and his wife live in Southern California with their five beautiful children.