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Financial Articles from Hefren-Tillotson

Why This Investing Column Won’t be “Shared” on Social Media

Written by
November 21, 2016

They say that bad news sells, and that certainly is true for financial advice columns. Opinion pieces shouting warnings for a Washington budget crisis or a coming market decline often receive the most clicks, likes, and retweets.

Yet when it comes to positive economic headlines or an upbeat market outlook, most of uskeep on scrolling.

It should be the opposite.

Consider that since 1945, the S&P 500 index of large stocks finished higher in 56 years and fell in just fifteen. Nearly 80% of the time stocks were up for the year.

Those are long odds to bet against. Yet investors do just that when they sell all their stocks for fear of a crash. Many will buy back in when the market is higher; others will remain on the sidelines forever. Few will reinvest at lower prices. Either they wont have the nerve, or a rising market wont give them the chance.

Bear market predictions occasionally come true, but few investors profit from them. Perhaps that is why investors in stock mutual funds experienced a 4% average return between 1985 and 2015 while the stock market itself returned 11%, according to a study by Dalbar.

So why do investors heed the prophets of doom?

Bearish predictions can sound more intelligent. Upbeat projections often assume tomorrow will resemble the past, but forecasting a surprise downturn suggests hidden knowledge about the future.

Fear is also a powerful emotion. Research shows that we care more about the risk of financial loss than we do the potential for reward. Our survival instincts warn us not to overlook the threat of financial danger.

We all want to be in control. In the short-term, the stock market can feel like a casino. No one wants to leave their finances to chance. Heeding a warning can seem like the responsible thing to do.

Nevertheless, few strategies have served stock investors better than a long-term buy-and-hold approach.

This investing column may not be shared because it doesnt incite fear or worry. Yet it may have more valuable advice by including this simple message: be optimistic about the future and invest for the long run.

 

Disclosure: PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS. This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.