Can Tuning Out the Noise Impact Your Wealth?


Have you ever tried to have a phone conversation while someone (spouse, child, or stranger) was trying to get your attention or making a lot of noise?

When it comes to managing your wealth, news outlets can be just like those distracting people who pull your attention away from what you are trying to do. Unfortunately, headlines often report on what gets the most attention rather than what is most useful. This “noise” causes too many investors to do the wrong thing, at the wrong time, for the wrong reason with their investment portfolio.

It’s not just news outlets that are making “noise.” Over the last 16 years, I’ve heard too many stories about advisors who used “noise” in order to sell products that are a “rare opportunity.”

I’ve also heard way too many stories from family and friends who told me about someone who panicked out of their long-term strategy and never got back in because they were sure that “this time it would be different.” The truth is that it’s almost never “different,” and changing your course to pursue a short-term investment isn’t typically a great idea.

Let’s pursue the truth about how easy it’s been to time and beat the market by asking two simple questions:

1. Are professional money managers able to time or beat the market over long periods of time?

A very recent study found that more than 90% of US small and large company stocks fund managers failed to beat their benchmark over a 15-year period.1

Why have more than 90% of the US stock managers noted above failed to beat the market over long periods of time (15+ years)? One idea is that they have not been successfully able to time the market. If they could, they would have better results.

2. Are individuals able to predict when to get in and get out of the market?

A recent study showed that investors are not doing too well and that many lagged the S&P 500 by almost 5 percentage points in 2018 due to their reactive behavior.2 It makes me wonder, how much of that reactive behavior is related to the “noise” that someone heard just before making their decision.

You might feel tempted to abandon your plan because of a news headline, pushy advisor, family member, or maybe your intuition telling you, “this time it’s different.”

Before making a decision that is based on the “noise,” consider taking 3 simple steps:

1. Create a financial plan that is relevant and realistic.

Your plan should tell you the rate of return you need to earn to achieve your goals based on your goals and your situation. For example, do you need to earn 5% – 7% – 9% or more on your money based on your unique situation.

Your plan should include your savings, spending/giving goals, your income sources, and other factors such as life expectancy and the fees that you are paying.

2. Customize an investment strategy that is capable of earning the returns you need, even during challenging economic times, and one that fits your tolerance for risk.

Do you know how long your money would last in a great depression scenario? It’s one thing to know what your investments have historically returned per year. It’s another thing to know how your plan would hold up if a major recession were to hit later this year.

You also need to self-reflect on your risk tolerance. How do feel about seeing your portfolio fluctuate in value? Can you stomach the potential volatility of a high-equity portfolio or do you prefer a portfolio with less volatility but lower expected returns?

Also, make sure that your short-term investments are not taking on more risk than you can handle because the markets are very unpredictable in the short-term.

3. Ask for help.

Get help from an advisor who can help you customize a financial plan or give you a second opinion on your situation if you are worried about your current strategy. Consider working with an advisor who is fee-only, one who doesn’t have an incentive to sell you products or investments that pay a commission.

Research shows that more expensive products can erode your chances of a successful investment experience.3 A good advisor can help you focus on what you can control and help you avoid “the noise” that could cost you.

If you want to learn how we can help you get more out of your time and money, connect with us on our website or request a meeting.

Nobody should have to feel lost in developing their investment strategy. Would you happen to know just one person who could benefit from this information? Please consider sharing this blog post with friends and family in the links below.

Additional Resources:

The video from Dimensional Fund Advisors, “Tuning Out the Noise,” dives further into this topic with examples from previous years in the market.

View other posts on our blog for more content like this.


The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John Bogle3