Life is returning to normalcy now that Irma has passed. Everyone I talk to has harrowing stories of either escaping to the north or riding it out at home. Hopefully my kids will remember it as a fun family vacation to the Florida panhandle. I think if the parents stay cool (like cucumbers), the kids will respond accordingly.
As the leader of the Retirement Revolution, I spend a lot of time studying how the media injects hysteria and worry into the lives of retiring Baby Boomers.
Last week I noticed an interesting parallel between the coverage of the hurricane and the coverage of the stock market.
While I don’t want to minimize the seriousness of Irma (we really dodged a bullet), I do want to point out the psychologically damaging effects of 24/7 news coverage.
We all watched it. Weather people standing outside giving us minute by minute updates of the carnage.
Is it just me, or do these weather people almost seem excited that a hurricane is imminent?
Of course they do. For the 24/7 news channels, hurricanes = ratings.
It reminded me somewhat of when the stock market goes down a few percentage points. Nothing like a temporary downturn in the markets to give these talking heads on TV a little pep in their step.
- What is my point? Watching hurricane coverage for days on end is bad for your health. Yes, a hurricane is coming. Yes, there are things you can do to prepare. But the National Hurricane Center only releases new models every few hours. Everything in-between is pure speculation.
2. Watching financial news coverage for days on end is bad for your health AND your financial well-being. Yes, the markets go up and down. Yes, there are things you can do to position yourself for long-term financial and investing success. But day to day and minute to minute changes don’t mean anything. No one knows which way the markets are going to go. It is ALL pure speculation.
But I have amazing news! Over time, a diversified portfolio of stocks and bonds is an incredibly powerful and effective wealth building tool.
“But Dave! What happened to the people that invested their money on September 28th, 2008? That was the day before the ‘bubble’ burst. Did they lose all of their money?”
If you had utilized a diversified portfolio of 50% stocks and 50% bonds, and you invested it at the absolute worst time in September of 2008, what was the result?
$100,000 invested on the worst possible day is now worth $197,000*. That is a $97,000 gain in less than ten years, or an average annual return of slightly less than 8%. Wow! Remember, it is not about timing the market. It is about time in the market.
*This is a hypothetical illustration of mathematical compounding and does not represent the performance of any specific investment product or class of investments. Rate of return will vary over time, particularly for long term investments. The results shown do not reflect product fees, charges or taxes which would reduce returns if included. Actual results will vary.
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The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.
The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index. Actual results will vary.
This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.