Understanding economics and finance is important. It is important for your own financial planning, and it is especially important if you want to constructively impact public policy and opinion.
Fixating on the short term ups and downs of the market is not important or productive. It leads to heightened anxiety and poor financial decisions. Yet it seems that most of the financial media focuses on these short term fluctuations.
Have you ever watched the financial news on CNN with your television sound turned off? The facial expressions of the reporters would lead you to believe a tsunami had just hit Manhattan. The flashing lights, and the reds and greens of the ticker tape along the bottom of the screen have been shown to affect the most primitive pleasure/pain – confidence/fear portions of our brains. It is similar to the environment a Las Vegas casino tries to create. Sound, long term, important financial decisions cannot be made on the basis of this “information.”
How many people do you know who sold at the bottom of the recent financial crisis, or who over-allocated to stocks as the market was soaring in the late 1990s? Were you tempted, too? I know I felt tempted. How much of those decisions and temptation were driven by the constant “news,” the flashing lights, the anxiety/euphoria produced by the daily financial media? By stimulating these primitive portions of our brain, the financial media greatly amplifies the rational fears and concerns we all have. They are amplified so far out of proportion that people frequently end up making decisions they later regret.
Do yourself a favor in 2010 and limit your exposure to the financial media circus. Stay informed and engaged, but recognize when pundits and talking heads are trying to manipulate your emotions. The antidote is a solid financial plan crafted specifically for your situation. It allows you to take a long-term view, and will free you from the ups and downs of daily headlines.
Sincerely,
