The hysteria in media over every subject is a pet peeve of mine, but no place more than the coverage of financial markets.
Each and every day at the close of the market, the CNBC app sends me a notification that says “Stocks soar/surge//rise/drop/plummet due to ____.” Taking a complex situation and assigning the simplest answer to that problem…that’s the way news is formatted for us. And it holds no value.
I write this on a day when the Dow was up 192 points, the S/P 500 was up 10 and the NASDAQ was down 9. My app won’t explain that.
The lunacy continues when you realize the S/P 500, comprised of 500 U.S. companies to “reflect” the entirety of the economy, has over 15% in FIVE stocks—Apple, Amazon, Microsoft, Facebook and Google. While that portfolio has been fantastic for sure, but who aside from gamblers wants to own 5 stocks and call it a day?
Let’s go one step further. The S/P 500 is up 9.3% year to date as of this writing. However, 84% of those S/P 500 gains are attributed to just four stocks-Amazon, Microsoft, Apple and Netflix. That’s a tad bit more complicated than the one sentence explanation my app gives me.
Why do I bother explaining this?
A portfolio and a plan are not the same things. Investments are important to be sure, but absent a PLAN, they are nothing but a possession.
Nick Murray is one of my favorite financial authors, and as he writes in his fifth edition of Simple Wealth, Inevitable Wealth:
A portfolio is not, in and of itself, a plan. And a portfolio that isn’t in service to a plan is just a form of speculation; it can have no other goal than to beat most other people’s portfolios.
But “outperformance” isn’t a financial goal. An income you don’t outlive – to cite one critical example – is a financial goal. If your portfolio “outperforms” mine, such that I run out of money when I’m 76, and you don’t run out of money until you’re 82, it isn’t going to matter much when we’re both 85, sitting on a park bench without two nickels to rub together between us.
The plan is 90% of the ballgame. Executing that plan, including one’s investment strategy is the other 10%. A proper plan informs us as to what those investments should be.
I will continue to emphasize this importance of your plan, and the relentless execution of that is what leads us to the financial promised land. The headline of the day, short term rises and falls in the market, and all the noise that surrounds us is a major threat to the plan, because we are emotional, and let’s face it, sometimes greedy.
Don’t fall prey. HAVE A PLAN. Stay the course.
