If you are a consumer of financial news, you will be used to seeing headlines like this: “The Dow added 141 points because recession fears are fading”. Well that sounds like great news doesn’t it? Onward and upward! Yet only two days ago it was “Dow plunges on recession fears”. So are we afraid of a recession or not? Is the market going up or down?
Of course, the market is going up and down. That’s what markets do. Most of what passes for financial news is just commentary on that particular day. It’s like listening to a report on how the weather was at the end of the day – not much use if you’re trying to figure out if it will be sunny for golf at the weekend…
But surely some of this stuff must be important? What should we be paying attention to and what is just noise? Well firstly, if you are a long term investor with a diversified portfolio that you rebalance at least annually, then almost all of this stuff is noise. It may be helpful if you are making tactical trades with a small portion of your assets, but talk of an inverted yield curve* should not be keeping you awake at night.
Of course I am not trying to discourage you from keeping an eye on what’s going on and trying to become a better investor. But if you want to keep your time spent on this stuff to a minimum, here are some simple tips:
- Understand the correlated assets and how they behave over time – here’s a basic guide to cash, bonds and equities.
- Understand what stage of the stock market cycle we are in. Most people buy and sell at exactly the wrong time. If you don’t know where we are on the graph below, then how do you know when to be more aggressive or defensive?
3. Know your benchmarks. In particular, know the rate of inflation in your base currency. This is your key benchmark to compare investment performance to.
For most (non-finance) people, I think this is enough. If you understand how the main asset classes behave over time, what stage of the market cycle we are in, and how your investments are performing relative to the main indices, you probably have more valuable knowledge than you would gain from watching an hour of Bloomberg news a day.
This isn’t to say you shouldn’t read or listen to investment podcasts to broaden your knowledge. Just don’t let yourself be swayed from your long term goals by sensational headlines. I know people who have been following doom and gloom commentators far too closely since the 2008 crisis, and have completely missed the 10 year bull run in equities. Keep in mind what the stock market looks like over the long term:
Much like other types of news, focus on a few key things and shut off the rest of the noise for a less stressful life.
If you are looking to go a little deeper, this article provides a simple guide to 16 major leading and lagging economic indicators which are worth keeping tabs on.
*If you really want to know what an inverted yield curve is, there’s an explanation here.
Disclaimer: This should go without saying, but the information contained in this blog is not investment advice, or an incentive to invest, and should not be considered as such. This is for information only.