Financial Noise on Full Volume

Have you ever been to the doctor and told him or her what WebMD said? I did that once. I told my doctor that my Apple Watch had woken me up to tell me my heart rate was low. He asked, “Well, what did Doctor Apple tell you to do?” I got his point. Doctor Apple doesn’t know me or my health. Doctor Apple was reacting to one number.
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Have you ever been to the doctor and told him or her what WebMD said? I did that once. I told my doctor that my Apple Watch had woken me up to tell me my heart rate was low. He asked, “Well, what did Doctor Apple tell you to do?” I got his point. Doctor Apple doesn’t know me or my health. Doctor Apple was reacting to one number.

Here at Farrell Wealth Management Group, we don’t react to numbers. Instead, we follow certain rules.  Let’s call them, “Rules of the Financial Planning Classroom.” 

Rules of the Financial Planning Classroom

Financial planning starts with a plan.

No matter if you are asking where to put $100 a month, or $1,000,000 today, we are going to ask you, “How long are you investing? What and who is this money for? Where does your plan stand, today?”

An investment program inside a financial plan, should be diversified.

When you are learning something, the best teacher could advise you to do what’s easiest, what you like the most. But the best teacher will remind you, “Sometimes you have to do what is hard, and what you don’t like. You have to study Math and Reading.”  Diversification means owning different kinds of assets at different times. And some of those are hard to own at certain times. But every year, you study all the subjects.

Time in the markets is much more important than timing!

The best students, meanwhile, know short term blips are just that. A tweet is something that disappears in a few hours. Headlines always make us think the world is ending. But no matter how the world may seem, panic is almost never warranted.  Instead, patience and time are important principles in the financial planning classroom.

Faith in the Future is a requirement. 

While we all wish some things were like they used to be……most things are far better than we imagined. Think of those air-conditioned classrooms, with computers and Google that gives everyone access to infinite information. (I remember when the information available to me was accessed with a card catalog and it was most certainly finite.)

Selling at the bottom, and buying at the top are natural instincts but they are the wrong answer.

These emotions, while natural, are not logical. And they just don’t work! No one learns “Buy high and sell low” from their grandmothers! See Rule Number 1 and you will never let these emotions rule.

The reason I’m sharing these rules with you is that, recently, the financial “experts” on television have been screaming scary headlines. All were variations of “The Sky is Falling!”

As the rules explain, history has shown that staying the course and not reacting has been the right lesson plan for most long-term investors. This week’s headlines said one number might mean we will have a recession.  (That would be the inverted yield curve you may have heard about, which means the yield on long-term bonds dropped below that of short-term bonds.)  The media didn’t say that the number might not mean a recession. My low heart rate might have meant a health problem.  That number didn’t signify a health problem, but actually a health strength. Successful financial students don’t time the market. Successful investors don’t react but instead act on a plan. Thank goodness I followed my health plan created with my doctor based on my history, my lifestyle, and a lot of numbers.

Have you ever noticed the media rarely says the state of the world is good? Today more people are middle class citizens than ever in all of history. ALL. Middle class citizens buy most goods and services in the world. The media doesn’t remind us we live in amazing times with Apple watches that check our heart rates.

Today the media or financial experts didn’t tell us that the yield on the S&P 500 is 2%. The short-term rate that caused that inverted yield curve is 2%. The “experts” didn’t mention that an asset that has a yield and that grows over time may be better suited to an investor seeking to have growing income in a long-term retirement. The “experts” told you the market will go down and that we will have a bear market because of that one number. The “experts” didn’t tell you there are short term inverted yield curves that go away as quickly as they come, that it is the sustained inverted yield curves that are worrisome. The “experts” didn’t remind you that a recession doesn’t always equal a bear market. The “experts” also didn’t remind you that ups and downs – and even bear markets – are all part of the long-term curriculum or lesson plan. And the “experts” didn’t point out what you own or invest in should be determined by your plan.

The media, like Chicken Little with a sponsorship vest, tells you “The Sky is Falling, The Sky is Falling….” React. Tune In.  React. Tune In. React. Tune In. Like a nonstop fire alarm in elementary school without reassuring teachers telling you that this is a drill. This is normal. We know what to do in the event of a real fire.

The media colors every financial broadcast with the fear of 2008 to 2009. The Bear Market of ’08-’09 was the scariest one modern investors have experienced. The decline was deep. The decline was long. Clients, almost daily, express their fear of the time to recover, even though lots of them recovered from that bear market like every other one in their long investing lifetimes. (We think this may be because life is getting noisier and noisier.) None of us knows when that final bell saying school is out is going to ring. We could be looking at 40 days or 40 years of class time. But we do know history. And a complete study of history is very reassuring.

At the high in 2007, the Dow was 14,000. At the low on March 9, 2009 it finished at 6500. Today it is 25,450. Almost double where it was in 2007. And if your plan provided for your needs in the last 12 years, why can’t you go thru the ups and DOWNS again? Because the Rules of the Financial Classroom say it will go up and down all the rest of your life. The rules say timing will not work. Ever. Or another way to state that rule is Timing Never Works.

As financial planners, we are paid to create your financial plan, including an investment plan, and to monitor and adjust when your life changes! Not when the “experts” get noisy. We are paid based on the value of your investment portfolio, knowing your portfolio will go up and down. (Our compensation declines when your portfolio drops but we wouldn’t be earning our keep if we told you to waver from your plan or to break the Rules of the Financial Planning Classroom.) Our calling as your financial educators is to keep you focused on your plan and moving you on to graduation…reaching your goals and dreams.

Our intention is to keep doing all these things.  During times when financial noise is on full volume, I think it’s good to turn off the TV and remember that. 

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