Is white noise affecting your portfolio return?

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Are you listening to all the white noise out there?

I should probably start with what I mean by white noise. Think of this, you sit down to watch the evening news and the local station is “live on the street” with a play by play of a massive snow storm heading straight for your area. The scene flashes from newscaster to newscaster talking about locals preparing “for the worst storm of the century”. Milk and bread are flying off the shelves as if the apocalypse itself is knocking on our doors. There’s a whisper among the newscasters that local counties are sure to run out of salt and aren’t staffed well enough to handle this storm. Hours pass as communities brace for the worst and the worst comes; flurries slowly drift out of the sky and melt on impact as temperatures rise to an unbearable above freezing mark! Oh the horror!

White noise is just that; media over-exaggerating situations and circumstances in the name of a good headline. Ever hear the phrase “if it bleeds, it leads”? This is what media focuses on; getting the best story, headline and public reaction to get the most viewership and listenership. But why? The station needs more viewership in order to charge more for commercials and advertisement and a great way to do that is to have the biggest “breaking news” story to entice more viewers to tune in to that channel. So as a financial advisor, why am I talking about how local TV stations earn revenue? What does this embellishment of “news stories” have to do with your finances and investments? Actually, quite a lot.

How many of you remember Brexit? On June 24, 2016 the UK decided they wanted to leave the European Union and the world collectively gasped. Headlines read “US stocks hammered as Brexit shock rocks markets”, “Brexit Panic”, “Brexit Crash wipes out a record $2 trillion” and people reacted out of fear and pulled out of the market. For several days after the announcement the S&P 500 dropped 3.6%. Then what happened? As the waves settled, the markets returned and the Brexit fears became something of the past. From June 24, 2016 to July 1, 2019 the S&P 500 has increased by 45% from 2,037 to 2,964. For those that reacted to the headlines and pulled out of the market, chances are you may have missed out on most of that increase in the market since the announcement. For those that didn’t react out of fear, you got to share in that gain.

I want to circle back around to the white noise. We are bombarded on a daily basis with embellished news stories, scary headlines, hearsay, rumors and more and if we listen to it and react out of fear, you could potentially miss out on some good market returns. Investing is about staying in the market for the long haul. There are countless studies showing that investors can’t time the market; and there are countless other studies showing the success of investors who stay invested versus pulling out of the market when fear comes calling. DALBAR, a financial research firm, did a study in 2018 for those investors that pulled out of the market. The study showed in 2018 the S&P 500 Index retreated 4.38% but the average investor, due to poor timing, lost twice as much as the S&P 500 of 9.42% on the year. DALBAR did another study in 2015 over the previous 17 years which showed that the average equity investor underperformed the market by a staggering 8.19% per year due to bad market timing. The average market return during this study was 16.9% and if the average investor underperformed that by 8.19% then the average investor was only seeing returns of 5.5%. What causes bad market timing? Listening to the white noise and making decisions based on fear.

I’d like to share one more story with you that happened last week. I had back to back appointments and in between appointments I often check to see what the market is doing using an app on my smartphone. I opened the app and the first thing I see is “Stocks Plummeting”. I quickly searched to see what the market was doing and why stocks were plummeting. I soon find that the DOW and S&P 500 were only down less than a quarter of a percent; being down less than a quarter of a percent is far from “plummeting”. This is another example of blowing something out of proportion for some headline news.

I’ll sum it up with this, we know that large caps have historically returned approximately 10% and small caps have historically returned approximately 12.7% however the average investor sees much less than that due to jumping in and out of the market at all the wrong times. Much of that movement can be attributed to clients reacting to the white noise and fear in an attempt to time the market; and this never works. Are you letting white noise affect your portfolio? If you are, here’s an easy solution; build out a globally diversified portfolio based off of your risk tolerance, turn off the TV and allow your investments to mature unaffected by the white noise.

Remember, your best years are ahead of you; invest wisely!

If you have specific topics you would like discussed, please forward them to me at rbehymer@emerywealthmanagement.com. Please remember, past performance never guarantees future results. Items discussed in this article are based on my opinion and are not designed to be a specific recommendation to you.

This article is prepared by Randy Behymer, MBA, President of Emery Wealth Management with offices in Carrollton and Louisville KY. You can contact him at 502-214-3299. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Emery Wealth Management is a separate entity of Securities America.