Ignore the Noise When Investing
Time in the Market is Better than Timing the Market
It is not difficult to find doom and gloom predictions about the stock market. Late last year, it seemed like there was an article every day predicting the market would fall approximately an additional 20% and a recession in 2023 was a foregone conclusion. Instead, the market has posted significant gains in 2023 and the supposedly unavoidable recession still hasn’t happened. Positive real-world results haven’t stopped the tide of negativity. Last month, stock market guru John Hussman theorized that there is a high probability in the short term for a catastrophic 63% downturn in the S and P 500. Since the stock market has historically made positive gains in eight years out of ten, why are negative predictions so easy to find?
1. Bad news sells. If one financial institution predicts a small gain in the market over the next year and another group predicts devastating losses, the loss prediction will get more attention. A negative forecast will get more clicks for news organizations and will get direct more traffic to that financial institution. Why does that matter? See reason #2.
2. Emotional Manipulation. Commission based sales represents a significant income stream for the financial planning industry. Fear is a great motivator. Selling the concept that investing is scary and you need a professional to manage your money is a great way to maximize commissions. Often, these financial advisors will have incentives to invest your money in actively managed mutual funds, even though those type of funds rarely outperform index funds. In fact, according to the latest SPIVA report, the S and P 500 outperformed over 90% of actively managed large cap funds for the ten-year period ending in December of 2022.
3. Managing Expectations. It is the policy of some financial institutions to give low estimates on rates of return to manage client expectations. If an institution projected a 5% rate of return and the actual rate of return was 7%, the client is happy. If an institution projected a 10% rate of return, that same 7% rate of return would be a disappointment.
There will always be a lot of noise surrounding the stock market. Ignore the noise. Have a long-term plan and stay in the market through the dips. Let the people around you get involved in panic selling. Then, buy their stocks at discounted prices.