by Dave Clayman, CMT®, C(k)P®, AIF®, CPWA®, Co-Founder and Principal
Most people would argue that living in a digital world with instant access to an endless stream of information has made us smarter and more self-empowered than past generations. Investors believe that it has “leveled the playing field”, enabling them to make investment decisions based on the same information once only available to the investment pros. The incessant quest for information has reached such a fever pitch that media outlets, including the cable channels, print media, and now, the blogosphere, are churning out content 24/7, and it still isn’t enough to satiate peoples’ ravenous appetite for information. So, it’s all good, right? WRONG.
There is a much stronger argument that can be made that, for people in general and investors especially, information overload not only makes it more difficult to make rational decisions, it often leads to behavior that can be harmful, if not devastating, to your financial health. While there has obviously been a marked increase in the quantity of information, the quality of the information will always be in question. Where you have quantity without quality, all you really have is “noise.” And for people who really should be listening for legitimate financial advice and relevant information, it can be deafening.
With most of the population wired to the Internet and mobile devices, information has become so ubiquitous that people tend to take it for granted. The media is taking full advantage of this attitude of entitlement to layer on as much content as it thinks the public can consume. In order to attract the attention of a preoccupied public, and therefore the advertising dollars its viewership generates, the information has to be entertaining, pithy and compelling. To that end, the media has no fear or shame in hyping a story beyond a reasoned reality in order to make its information seem essential.
In the investment arena, stories can’t be compelling, or entertaining, for that matter, unless they are consequential in the short term. In other words, the Facebook IPO, even though it was of little actual consequence to most investors, is a much more compelling story than an essay on the superior, long-term performance of index investing, even though the latter story could benefit the vast majority of investors. The problem is that the information we, as investors, receive is filtered through an “excitability” gauge. Can you imagine an analyst or stock guru spending 20 minutes on CNBC talking about the 5-year growth prospects of the stock market and how a diversified portfolio is your best opportunity to outperform the market? Three-quarters of the audience would switch over to the food channel where they could find much more “consequential” information.
The goal of media is not to assist you in growing your portfolio but to generate an audience in order to increase advertising revenue. Cautious outlooks or predictions of a decline in prices don’t accomplish that goal. It is well known that a majority of investors stop looking at their account statements when markets are going down because they “don’t want to know.” Therefore, negative talk in the media would likely lead people to stop watching. Think about the last time you heard cautious commentary about investments from the mainstream media and then ask yourself whether that is likely balanced reporting and fact presentation or wild-eyed optimism in an attempt to increase viewership.
Unfortunately, access to more information and technology has not improved investor performance over the last couple of decades. While we’re not suggesting that you should turn off your cable news or refrain from surfing investment sites, you do need to keep in mind that these sources of information don’t necessarily share your agenda. Your investment portfolio should be just that: YOURS. It should be customized to what you want to accomplish. Everyone loves to get the latest hot tip, but often one just ends up getting burned. Gathering information and educating yourself are essential parts of the process, but it should be done in the context of your own clearly defined objectives and a well-conceived financial plan. Be inquisitive, keep learning and asking us questions, and watch the financial media with a skeptical eye. As financial professionals, we welcome your input. After all, the financial plan we create for you is based on your goals. We understand that; the media does not.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.