It’s another typical early morning. With a busy day ahead, I’m getting a bit of writing done before the kids drag themselves out of bed and downstairs for breakfast. I’m clicking around the Internet and wiping the sleep from my eyes when I’m greeted with this headline from Yahoo Finance:
“Global Shares Plunge as U.S. Slowdown Adds to Emerging Markets Woes”
I quickly pulled up a stock chart and noticed the financial markets have been in a free fall since the start of January. As of this writing (the morning of 2/4/14), the Dow Jones Industrial Average has fallen over 1,200 points (about 7%) since Jan. 1st. Many are calling for another 3-5% drop from here. Yikes!
Well, faced with that news what could I do? I grabbed my shotgun, some bottled water and my case of Ritz Crackers ‘n Cheese and headed for the bunker I’ve built in the basement. It’s fully stocked for Armageddon. The wife and kids will have to fend for themselves.
Clearly the world is coming to an end.
Isn’t that your first gut reaction when those sensationalistic headlines hit the newswires? Doesn’t our mind subconsciously leap to thinking “My life is slop” when we hear the headline “The markets down big today?” Why is it we get so worked up about the everyday minutia of stock market trends and economic reports?
I mean some are literally basing the entire outcome of their day on how many durable goods were sold last month. Give me a break.
I’ve worked really hard to control my emotions when it comes to money. Even now though, my spirit wants to trend towards panic at the first sign of market commotion. I really have to consciously fight it. Fortunately over the years, I’ve developed some defense mechanisms that have helped me resist going crazy over these short-term fluctuations in the market.
Before I describe what those are, I’d like to say a word (have a polite rant) to the major financial news media outlets:
Stop it! Please.
Quit creating unnecessary drama when reporting the financial news. Stop raising your voice like there’s an asteroid headed for my backyard. Stop showing brokers sweating it out, screaming at one another on the stock market floor.
Those of us who truly get personal finance aren’t interested in this frenzy or the short-term trends anyway.
And the people that don’t yet get personal finance – the ones we are trying to help have long-term success – are getting scared. They are making unwise decisions based on the sensationalizing of the day’s financial events.
We get that you want ratings for the parent network or website but you are making our job as personal finance bloggers even more difficult. (Rant over. That was a polite rant, right? I said “Please.”)
So how do I avoid getting swept up in these headlines? For me, it really boils down to three things.
Develop a Long-Range Plan
Put some plans together and develop a clear map for your financial life. Have a plan for your investing. Have one for budgeting. Have a plan for savings and spending money. Putting these in place will give us peace of mind and keep us from overreacting. When the “scary” news comes we can simply say, “Nope, not going to listen. I have my plan.”
Only adjust those plans if something changes in your world, not based on something that happens on one day in the market.
Been There…Done That
Frightened because the market is down 7% since 2014 began? I’m not because it’s happened dozens of times in my adult life. Each time it happens I just remember that I’ve seen it before.
Look at this 2-yr. chart of the Dow Jones Industrial Average:
As you can see, six times in the last two years alone the Dow has suffered a 5% correction or more. Let me say that again… six times in the last two years. It shouldn’t come as a surprise to anyone these pullbacks happen. We don’t need to fear them. (I’ve provided a detailed breakdown of the six corrections in the Dow over the last two years. Click here for that page.)
Pullbacks occur all the time and are not worth the dramatic attention we give them. One 10% correction is not more important than another. So breathe easy and sleep well.
Turn Off the Music
Finally, I’ve simply shut down the programming. I choose not to listen or watch the financial news outlets. Instead I read. I’ve found that helps reduce my emotion over what’s happening.
I’m not going to denigrate all the network programming. There are some quality people conducting the occasional worthwhile interview. However, most of the content doesn’t strike a chord with me nor does it help me advance my long-range planning.
My Life Is Emotional Enough Without the Drama
I’m a long-term, buy and hold investor. Mutual funds, retirement accounts and rental real estate are my bread and butter. I own only one single stock. So the short-term trends of the market simply don’t interest me like they might an institutional investor or a day-trader.
Ignore these sensational headlines and the news anchors squawking at the top of their lungs. Realize the world’s not coming to an end based on one day, one month or one year’s worth of market action. It’s all happened before and will definitely happen again. And understand that simply because the markets correct, sometimes significantly, doesn’t mean your plan is faulty.
One day the world will end. But it won’t be because of a one-day 300-point drop in the Dow. Chill out!
Do you get worked up about these headlines? How do you stay grounded and not make a silly financial decision? Are you fearful of investing when the market is in a downward trend?
Chart courtesy of Yahoo Finance
Image at FreeDigitalPhotos.net
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I just sit back and laugh at the headlines. Then I get mad because they sucker so many people into making mistakes with investing. There is ALWAYS volatility in the stock market over the short-term. But over the long-term, the trend of the market it up. Stop focusing on the doom and gloom everyone is selling and just stick to your long-term plan and continue plugging away.
It’s really tough when you are talking to friends or family who are pulling money out of the market. I really want to explain that it’s a bad decision…but then I usually don’t because unsolicited advice about money is generally not received well.
I only wish my solo 401k was ready The paperwork takes a while. I kind of hope for a dip so I can put my money in at a low point. If only we knew when exactly that was.
I hear ya Kim. I love buying on the dips but I’m not going to wait around for one. I’ll just consistently put money away and feel real good about that plan.
Yeah Brian I agree; I think the lion’s share of that cacophony is aimed towards the trading community. Ever since the dot com pounding I’ve made it a point to not pay much attention to any of those outlets. Being a sort-of perma-bull and Modern Portfolio Theory acolyte, I’m just not that interested in all that noise. Though I must admit, when something tremendous is going down (like those crazy point swings in 10/08) I can’t help but pull up a chair to watch the train wreck!
I agree Chaz. Those type of dynamic moves are worth paying attention to, mostly because they represent an incredible buying opportunity. We were buying the whole way down and the whole way up. One of my son’s custodial accounts was started at basically the market bottom in 2009. That’s done real well! 🙂
I hadn’t even realized Monday’s dip had happened until my friend told me about it, and was unaware of how January went until I did our monthly net worth update. Your tactic of simply avoiding the financial news is fool proof: what we don’t know can’t scare us.
I didn’t know either. I knew the market had gone done a bit but didn’t know the extent until I looked it up. “…what we don’t know can’t scare us.” Agreed. And it won’t disrupt our life…I’ve had a great 2014 thus far.
“The wife and kids will have to fend for themselves.”ha ha! You’re so sweet! 🙂 This is why I don’t watch the news. I used to be worried I was going to be burying my head in the sand, but somehow I still know what’s going on in the world without having someone shout bad news at me. I always think we survived this long as a species and we probably aren’t going anywhere anytime soon, so we can all just try and relax a little bit. My dad is the kind of doom and gloom. He like to remind me constantly of how bad things are and bla bla bla. This helps me how? I just try to do the best I can to prepare for your average, every day emergencies. If we had something like an astroid or tidal wave or something headed our way, I’d just assume be at ground zero so I could go quickly and not have to worry about living in a post apocolyptic world. I’m such a wuss. 🙂
I really try to avoid the doom-and-gloomers in my life. It does me no good to be around people who are constantly looking on the negative side of life. I’d much rather spend time around optimists…they will be the ones to inspire me.
Of course I chose this month to open an IRA! I don’t mind. I’m investing for the long term, and the ebbs and flows of the market are inevitable. Sure it’s a bit of a downer when you don’t see the numbers going up, but if we give it some time they will.
Haha…not really laughing at you E.M….just know how you feel. We all want those investments to go up the moment we put in the order. We opened some accounts for my two oldest at the peak of the market, before the financial crisis that sent stocks spiraling down in 2008-09. Their accounts have now fully recovered and are showing a gain. Conversely, we opened an account for our youngest one at the bottom of the market in in 2009. You can imagine, his returns are killing his older brother and sister’s. Funny how that works.
Great post, Brian. I’m like you – even though I logically know better, I have to fight not to panic when I hear all these sensationalized news stories coming out of media outlets. It’s hard not to get worked up when everyone else is! Best thing I’ve found is to just ignore it and above all else, when stuff like this happens I avoid logging into Vanguard and looking at exactly how much value I might have lost. Like you said, this is short term stuff and those of us who “get it” shouldn’t be concerned about it. Just stay the course and you’ll be fine.
I cringe when I hear people say they sold their stocks based on something they heard on TV. I’m usually aware of what’s happening in the market. Based on that, I can guess what’s happening with my portfolio, but I don’t check my net worth more than twice a year.
All the commotion is ridiculous. It makes them look like they don’t have even the most basic understanding of how the stock market works.
I really think the majority of the coverage is not geared toward average investors. It’s more for the Wall Street crowd…big institutional investors…day traders, etc.
The media does tend to sensationalize things don’t they? I personally have no real interest in what the greater market does as I tend to buy and sell penny stocks and they do their own thing regardless of the greater market.
I’m not familiar with how that segment of the market reacts to dramatic shifts. Sounds like they are immune to it at some level .