Think for a moment, if you will, about the job of a financial journalist. Typically, a salaried journalist needs to write something every day, otherwise he doesn’t get paid. Many financial journalists are in this situation; and the subject they have to write about is what the markets are doing right now. That means, even if there is nothing substantially newsworthy in the markets, they still have to create headlines.
That’s why you’ll often see headlines like: Prices dip on profit taking from Friday’s gains. Does this actually tell us anything useful at all? Prices were up before and now they are down. This is the financial-world equivalent of reporting that forgetful Mr Jones misplaced his car in the multi-storey, or that Elvis is still dead.
If you’re a day-trader, or a very short-term investor, then probably yesterday’s stockmarket movements will be important to you. But if you are a long term saver and investor, then almost certainly the market’s fluctuations from one day to the next will be completely irrelevant to your long term financial success.
A good financial advisor will help you structure your investment holdings so that:
- Best use of diversification is made - across geography, asset class and currencies
- Your portfolio is constructed with a risk profile to match your personal acceptance of investment volatility
- Your investments are chosen appropriately for your time horizon and any particular milestones when you might need to access cash
With a proper strategy in place, you can relax and ignore the markets short term fluctuations. Certainly keep up to date and read the financial pages at the weekend, and if you like, stay in touch with trends on major asset classes like equities, property, gold, emerging markets etc.
But let go of the stress and don’t worry about todays headlines!
Long term returns are the only ones that matter.