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Take a Vacation… from the Headlines!

Jarrett McKay - Dec 26, 2016
During difficult economic times, and when it comes to your investments, taking a vacation — that is, from the headlines — may be one way to improve your investing behaviour.

During difficult economic times, and when it comes to your investments, taking a vacation — that is, from the headlines — may be one way to improve your investing behaviour.

 

Technology has created new forms of media that have improved our connectivity, but at the same time have also amplified the ‘noise’. News travels more quickly and reaches more people than ever before. Seemingly, it has also increased the potential for people to overreact.

 

As an example? Recall back to the year 2013 when temporary "market mayhem" resulted when a hacked Twitter account of the Associated Press (AP) deceptively reported that U.S. President Obama had been injured in an explosion at the White House. This sent the Dow Jones Industrial Average (DJIA) into a 150-point tailspin within seconds, following strong gains earlier in the day. After it was revealed that the AP account had been compromised, the quick recovery of the DJIA showed that the market is also very efficient in correcting mistakes like these. Although high-frequency trading algorithms played a role, the event demonstrated how quickly information spreads and how hastily financial markets can react.

 

This is a good reminder that it may be better to step back from what the headlines are saying. It is not uncommon for the media to target our emotions and it is all too easy to react to short-term hype that could be either negative or positive.

 

Another problem with following the headlines too closely is that the markets sometimes may not react the way you would expect. Throughout the history of the stock markets, prices have often moved up or down when the prevailing sentiment suggests otherwise. We have seen this more recently with the record-setting performance of the U.S. markets despite the nation’s continuing economic struggles and well before any signs of sustained economic growth.

 

Headlines aside, it is investing for the longer-term that will help to provide the growth and resulting returns to investors. Remember the objectives set out in your personal financial plan as they have been put in place to be your guide. Make sure to keep them working for you, so that you can take a vacation from the headlines.

 

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