Is the financial media a help or hindrance? [video]

In this video you'll learn: 

• how the media can distract investors;
• why investors should buy and hold regularly; and 
• why investors shouldn't let the media guide their investment strategy. 

Transcript

Robin Powell: One of the places that people look for information when making investment decisions is the news media. But, with its inevitable focus on stock market volatility and where markets might be heading, the media can distract you from what you really need to focus on.

Louise Cooper is herself a financial journalist.

Louise Cooper: You can’t predict what a market is going to do, you can’t. And if you miss out on the big up days, it seriously impacts your long-term performance. What those two facts tell you: buy and hold. Buy and hold. Buy every month, pound cost averaging, every week, whatever it is. Pound cost averaging, buy regularly, that is the way to do it. So ignore what the news tells you, follow the academic research. Buy and hold regularly, save, put your money away. Forget about what the market does - it’s interesting from a news perspective, utterly irrelevant from an investment perspective.

Robin Powell: That’s not to say you should ignore financial news altogether. It can be very interesting. But you certainly shouldn’t let it guide your investment strategy.

Louise Cooper: So I consume the news, I look at share prices, I look at what’s going on. It has no impact whatsoever at all on how I invest. At all. I look at the economies, I look at the markets, I look at all of it. It does not stop me from doing what I do, which is, every month money goes into my pension, every month money goes into my children’s, you know, future savings, every month money goes into my husband’s pension. We don’t change the fund we’re in, we’re always in the same fund.

I read it all, I find it fascinating, I love it - no impact on how I invest at all.

Robin Powell: Another problem with the financial media is that low-cost, passive investments receive far less attention than actively managed funds. The main reason for that is that the active fund industry spends huge amounts of money on PR and advertising.

Louise Cooper: The other thing I don’t think the media truly understands is that passive is not trying to blow the lights out. Because you blow the lights out one year and have amazing performance but then the next year, you have terrible performance, that’s how active works, generally, ok? So in any given year, passive is very unlikely to be one of the top-performing funds. But it doesn’t need to be. That is the point. Average, year after year after year after decade after decade, will blow the lights out over forty years.

You don’t need to blow the lights out. The whole point in passive is that it’s never going to make the top of a performance chart because it’s not what it’s trying to do - it’s not what it needs to do. So that’s another thing, ignore performance charts for funds, and yet they are everywhere.

Robin Powell: In short, financial news might be entertaining. But, from an investment point of view, it’s not as useful as you might think.