Worried about the news? The key to maintaining your equilibrium as a long-term investor is grasping that your horizon and those of the pundits trying to make sense of daily market volatility are not the same thing.
Imagine for a moment that you make your living as a financial journalist or broker or market analyst. Every morning you check the news from overnight. What did the US stock indices do? Where are bond yields? What about currencies?
This is your business, after all – constantly following the news cycle and estimating the effect that geopolitical developments, economic data releases, company earnings updates and other events may have on future returns.
Every day the markets are worrying about something new. A journalist’s job is to squeeze all the random events into a compelling story. An analyst seeking to market their firm must have an opinion about what might happen next.
Harvesting Clicks
In an information-saturated world, the most valuable commodity is your attention. That means the analysts who make the biggest, most dramatic calls tend to be the people that journalists gravitate to. More attention = more clicks = more ad dollars.
In early 2016, the Royal Bank of Scotland (RBS) – a bank bailed out by UK taxpayers during the global financial crisis eight years before – made a startling prediction. “Sell everything,” its chief analyst said, citing falling oil prices, volatility in China, shrinking world trade, rising debt, weak corporate loans and deflation.
This headline was plastered over financial front pages all over the world. It seemed to ring true as markets had begun that year in a foul mood and many investors were worried about events like the Brexit referendum and the US election.
But the RBS prediction of catastrophe turned out to be well wide of the mark. In fact, the US S&P 500 returned nearly 12% that year, including dividends. In fact, it more than doubled over the subsequent nine years.
Now this isn’t to claim that every forecast of a rocky year ahead (or indeed a bumper year) will turn out to be wrong. It’s just to make the point that these are only somebody’s opinion, usually somebody with a much shorter horizon than yours.
Mission Impossible
The job of a market pundit, after all, is threefold – first, to take what has happened (today’s news) and build it into a compelling story that attracts eyeballs; second, to project what today’s events will mean for future events (tomorrow’s news); and third, predict how markets will react to their prediction, assuming they’re right.
Can you see what an impossible task this is? Occasionally, of course, they get it right. More often, they get it wrong. But they always have the defence that the call they made was rational based on the facts at the time they made it.
The truth, however, is that facts change. And they can change quickly. What’s more, the things that tend to move markets the most are those that are not already factored into prices. As the Nobel laureate physicist Niels Bohr once wrote: “Prediction is very difficult, particularly about the future”.
What Can You Do?
So how can you cope with all this as a long-term investor? First, accept how markets work. News happens quickly and gets built into prices instantly. As news is unpredictable, it doesn’t make sense to use the headlines to make decisions around your portfolio, particularly knee-jerk ones based on pundit forecasts.
Second, the reason you have a financial plan is that it is made for you – your risk appetite, your goals, your investment horizon, your circumstances. If these change, your plan can change. And if markets change, your portfolio can be rebalanced to take account of how it fits with your goals. None of this requires a forecast.
Third, as should be clear by now, no-one really knows what will happen next. But the reason you have a trusted adviser is not to forecast what will happen but to build a plan made for you that takes account of what can happen.
The news is interesting, sure. No-one says you can’t have an opinion. But that’s not what you’re paying your adviser to provide. They are there to give you structure, clarity, confidence and to keep their eyes on your horizon, not on the guy on TV every night telling you what will happen tomorrow, next week, or next month.
28 April 2025
By Jim Parker, Financial Journalist
About Jim Parker
New Zealand-born and educated, Jim Parker is a lifelong professional communicator. As a financial journalist, Jim worked around the world for major publications, including the ABC, RNZ, Reuters, and the Australian Financial Review. In a subsequent 17-year career in funds management, he provided communications advice to one of the world’s most respected asset managers and wrote five books on investor education. These days, Jim consults to the advice sector. Jim is a graduate in journalism from Auckland University of Technology and in Social and Economic History from Deakin University, Victoria. He lives in Sydney.
