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The financial media specializes in creating a negativity narrative that’s difficult to ignore. The media diet that you consume creates a framework for your financial decisions. It’s important to understand the financial media business model and their motivation so that you can separate reality from spin.
Most of the “financial facts” that you carry around in your head come directly or indirectly from mainstream financial media sources. The primary objective of the financial media isn’t to make you a successful investor. The main objective of the media is to sell advertising.
Print and digital media set their advertising rates based on how many people view (or click) on their stories. Therefore, they have a built-in incentive to sensationalize headlines to create interest, even if the narrative is misleading.
Financial media noise can stand in the way of your ability to make good decisions. Many aspects of long-term financial success can be traced directly to your ability to ignore short-term noise from the media.
Because readers want information quickly, most financial headlines rely on oversimplification. In reality, economic issues, the financial markets, and your personal financial situation aren’t simple. Why are the headlines so simple?
Here’s a sampling of headlines as I write this today: Economic fears temper market gains; Will a recession spook stock market investors? Short-term strength belies long-term market concerns.
The common theme running through most of the media headlines is fear. Fear is a powerful human emotion, and the financial media try to amplify this fear. Fear can lead to panic and panic creates short-term thinking.
It’s easy to fall for the negativity narrative because so much of what you read is pessimistic. The University of Michigan Survey of Consumer Sentiment Index, (a monthly survey of consumer sentiment), has been on a mostly downward trajectory for the past five years. The downturn in this index has been even more pronounced for the past two years.
Is it possible that many investors are overreacting to financial news? From what I witness as a financial advisor, that’s certainly plausible.
Do you find yourself more attuned to bad financial news instead of good news? If so, you’re not alone. When your personal financial circumstances are under stress, you tend to see the world through a negative lens.
It’s important to distinguish your short-term financial concerns from longer term expectations. Try to avoid making long-term decisions after a rough week in the stock market or after a flurry of negative short-term financial news.
Remember that nobody can accurately predict what happens in the markets or broader economy in the short-term. Shift your focus to your most important long-term financial goals and don’t overreact to what’s happening today.
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