(from Carl Richard’s New York Times’ Bucks blog, 6/6/2011 – click here for the original post. Carl is a Certified Financial Planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)
Traveling last week, I shared some workspace where CNBC played all day on television. For most people, I realize that it’s often comforting background noise. However, since I almost never watch television, I found it amazing how bipolar I felt as they shifted from one commentator to another.
Given how wild the markets were last week, I imagine that there were many people tuning in trying to figure out what to do. And that’s the problem.
Watching CNBC might be entertaining, but unless you fancy yourself some sort of day trader, it will not help you figure out what to do with your life savings.
This won’t apply to all of you, but I’m going to make some assumptions here. I assume that for most of us the purpose of earning money, saving it and actually doing financial planning is to hit some sort of goal. I’ll also assume that those goals are typically things like getting out of debt, establishing a rainy-day fund and saving for retirement or college for kids.
If that’s true, what are you going to learn from watching hours of endless chatter about new-home sales or the jobs report that will be helpful in meeting those goals?
Things change so fast, and on television the reactions in the markets are amplified by the need to have something to talk about to keep everyone watching so they don’t miss the latest breaking news. This constant stream of information makes us feel like we should be doing something.
But the question is, what?
What should we be doing? What changes should we make based on the latest breaking news? Do you see the potential problem? If we’re tuning in to figure out what the latest news means for our investment plans, and we make changes based on what we hear … well, that’s an awful lot of changing.
Doesn’t it make much better sense to design our investment plans based on our goals, and then make changes when those goals change, instead of trying to react to the minute-by-minute updates? The only thing we know for sure is that things will change. Does your financial plan help you weather these changes or are you tempted to jump every time a new headline pops up on television?