Despite hype, remain calm and invest on
This year is shaping up to be a strong year for the U.S. stock markets.
Last week, the S&P 500 was up more than 16 percent for the year, a strong gain by any measure. However, when I talk with individual investors, their overall perception is that the markets have not gone up.
This is further reinforced by recent research by Franklin Templeton, a mutual fund company. In its study, when 1,000 investors were asked whether they thought the S&P was up or down during each of the past three years, 66 percent thought it was down in 2009, 48 percent thought it was down in 2010 and 53 percent thought it was down last year. But the truth is the S&P gained 26.5 percent in 2009, 15.1 percent in 2010, and 2.1 percent last year.
Why such pessimism? I believe that investors are bombarded with so much negative financial news (thank you, cable television) that it overshadows the actual data that has been quite good. Plus, you’ve got the lingering effects of the 2008 financial crisis. Yes, 2008. Even though that crisis unfolded more than four years ago, many investors remain shaken, bitter and wary. And it’s no wonder.
Turn on any financial program and you’ll be met with dire predictions and overblown coverage of every little downturn. And it’s not just by chance. Television producers know that bad news is always a better draw than good news. Faced with 24 hours of air-time to fill, fear-mongering and fiction fill the bill quite nicely.
For example, in the past few weeks I’ve heard at least a dozen permutations of what is going to happen to the economy if the Democrats get re-elected. No, wait, did I say Democrats? I meant Republicans. That’s what’s really going to be bad. No, wait, that’s what happens if the Democrats win. But wait … you get the point.
While it’s tempting, I’m not going to suggest you throw away your television. What you should do is pay more attention to what’s actually happening in the market rather than what television programs tell you is happening. Pick up a newspaper or log on and take a look at the numbers and trends. If the market takes a real turn, consider making some changes. But otherwise, ignore the hyperbole, avoid the drama, stay calm and invest on.