News or Noise?

October 3, 2014

3 minute read

Heather Pelant offers two principles that can help you see what’s behind big headlines and make investment decisions based on your long-term goals.

by Heather Pelant, Blackrock

Being the family member in financial services means I get the calls from aunts and parents and cousins asking about headlines. It usually begins with “Did you hear that…” and then “What do you think it means?” ending ultimately in “what should I do?”

I totally get it. When you live in the world outside finance – and that’s most – it can sometimes be hard to know what to make of the latest market sensation blazing through the news cycle. Is it really that important? Does it affect me and my family? Should I be doing something differently with my money?

There’s a lot of advice out there telling investors to “tune out the noise,” but that’s easier said than done. Noise is, well, noisy – by definition hard to ignore. I know this from personal experience, whether it’s a worried call from a client or a relative, or even my own reaction to the headlines.

In fact, a sudden buzz in the markets can be a teachable moment, an opportunity to understand what drives you as an investor and how to make informed decisions that are in your own best interest. There are two basic principles at play here – one emotional, the other practical:

Know yourself. The first step to making sense of the noise is to recognize how much of your behavior is motivated by emotion, and then actively work to let your brain do the driving. For example, if fear is keeping you out of certain markets, make sure you understand the true cost of sitting in cash or the potential benefits of investing overseas. Self-awareness bolstered by education can help you gain perspective and respond thoughtfully.
Own your plan. Now more than ever, we need to be active participants in our investment lives. So even if you’re a long-term investor, you’ll want to keep a close eye on short term developments and prudently course-correct as needed. That may mean revisiting some of your holdings and seeing if they’re still a good fit. For instance, my colleague Russ Koesterich has recently written about how to rethink about your bond allocation given low interest rates and increased volatility. And while it’s not a good idea to constantly check how the markets are doing, you should make friends with your quarterly statements so you know what you own and see whether your portfolio is lined up with your goals.

I’ll be writing a lot more about these principles in future blogs. In the meantime, I’d love to hear how you deal with market noise – do you react emotionally or have you found a way to view it through a rational lens?

Heather Pelant is Head of Personal Investing for BlackRock. She is a regular contributor to The Blog and you can find more of her posts here.

iS-13634