5 good reasons you need to beware of reacting to news headlines or “expert” pundits

The constant stream of daily market news and commentary can challenge your investment discipline. Media messaging may cause anxiety about the future or entice you to follow the latest investment trend; first Brexit, then Covid and now Russia’s invasion of Ukraine. While global events can have significant human impact and cost, their impression on global equity markets tends to be far more fleeting.  

Here’s our five most important things every investor should remember when tempted to react to a news story or headline.

1. Headlines are written to attract attention 

The tactic most journalists use when crafting their headlines is to instil fear in their readers. For investors, it takes discipline to avoid getting caught up in the well-crafted hype. 

Headlines and articles you read in the financial press are designed to grab your attention. Another word often used to describe this is “clickbait”. 

Journalists know that fear and anxiety attract eyeballs, so they craft headlines to spark these emotions. Fear begins with the headline but the story itself will include language designed to perpetuate anxiety to keep readers engaged. 

When headlines leave you rattled, take a moment to consider the source and the motivations behind the story.  

2. Scare stories aren’t financial advice 

Newspapers and journalists deliberately create content to stir up controversy. Instead of writing an article with a balanced view or taking care to explain an issue in detail, they’ll focus on only one point and write to instil concern in their readers. 

Every day, we’re surrounded by financial news that feeds into our fearful and negative instincts. There was a time when people felt they could look to the media for guidance and neutrality, but now, with the well-established 24-hour news cycle, the way we consume news and even what constitutes “news” has changed.  

Negativity, competing speculation, doom-laden predictions, and fake news can all affect our decision-making – and not for the better. 

Remember, headlines and articles written to provoke a reaction should not be mistaken for financial advice. 

3. The media don’t have your long-term financial interests at heart

The businesses and individuals generating the news stories don’t have your long-term financial interests at heart. Although they are motivated to get your attention, in the main, the media’s priority is to sell advertising space. 

Newspapers and media companies may even have vested political interests themselves. If so, this will inevitably lead them to pursue an agenda that has little to do with the facts or what’s best for the average investor.  

Next time you face yet another apocalyptic news alert, or the Sunday papers tell you to invest everything in cryptocurrencies or risk missing the gold rush, remember that there is another agenda at work, and it’s not aligned with your best interests.  

4. Headlines are fleeting but investing is a long-term game 

When you invest, you should always do so with a long-term view.  

Good money management requires a reasoned approach to decision-making and impartial analysis of information. 

Headlines may give rise to concern but working closely with an expert financial planner to build a firm investment strategy and devise a well-structured portfolio is the surest way to block out the media noise and stay on course to meet your long-term goals. 

If you get startled and sell whenever the headlines predict disaster in the stock markets, you could lose out on substantial growth.

5. Over time, markets rise 

Despite what happens in the world, and how news is reported, while stocks may suffer some short-term volatility, historically stock markets keep rising. 

Casting a critical view over 70 years of covers and headlines, Time magazine wrote: 

“After 70 years of doom, gloom, world wars, terrorist attacks, Y2K, swine flu, bird flu, coronavirus, oil embargos, oil spills, increasing energy prices, nuclear meltdowns, poverty, recessions, inflation, housing bubbles, high unemployment, increasing taxes, corporate and municipal bankruptcies, hurricanes, floods, tsunamis, tornadoes, presidential assassinations, soaring national debt, threat of thermonuclear war, Communism, Nazism, Socialism, political incompetence, union extortion, corporate malfeasance and 13 cataclysmic “end of the world” bear markets nobody thought we could ever recover from, a hypothetical person who invested $10,000 (one time) into the S&P 500 PR Index (excludes dividends) on 9 January, 1950, and who never, not even once, paid any attention to the markets or any of the media-hyped front page news events that unfolded in the world over the next 70 years – who actually bought and held – looked at their hypothetical account value on 19 March 2020, only to find that their one-time investment of $10,000 had grown to $1,410,648, averaging 7.30% per year.” 

“After 70 years of doom and gloom, ... a hypothetical person who invested $10,000 (one time) into the S&P 500 PR Index on 9 January, 1950, and who never, not even once, paid any attention to the markets or any of the media-hyped front page news events that unfolded in the world over the next 70 years – who actually bought and held – looking at their hypothetical account value on 19 March 2020, would find that their one-time investment had grown to $1,410,648, averaging 7.30% per year.” 

Time magazine

It isn’t investments that get tested in turbulent markets, it’s investors.  

And it’s not what the markets do that matters, it’s how you react.  

While headlines and news stories will continue to generate fear and uncertainty, the smartest investors will rise above the noise and keep their heads. While selling out of equities might provide some short-term emotional relief, it’s patience and discipline that markets reward in the long run. 

At First Wealth, we’ll coach you in behavioural finance to help you understand how your behavioural biases could affect you and your money. When you know what to look for, you can learn to recognise harmful behaviours and avoid making potentially damaging decisions. 

An introduction to behavioural finance

This simple guide gives a fascinating insight into your own behaviour – and shares smart steps you can take to avoid repeating your financial mistakes.

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This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.

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