CNBC is usually playing in the background on a TV in my office. In addition to hard news, financial and otherwise, they have and endless stream of talking heads and commentators, both their own and outside guests, throwing opinion and predictions at the audience.
Last week the equity markets were particularly volatile, so I was paying a bit more attention. At one point on a sharply down day, they put on a guest who told us that he was predicting the S&P 500 Index would finish the year higher than where it was as he was speaking. He seemed very sure of himself.
This got me thinking. That’s only about 3 weeks from now. What he seemed to be trying to say is the recent decline in general stock valuations was finished for the rest of the month. If he is right, investors don’t have to fear any more loss of value for the next three weeks, and in fact could even make some money. I guess if your investment time horizon is three weeks and his crystal ball has fresh batteries, you could consider his advice.
For most of the rest of us, let’s have a reality check. The three week advice was so narrow, deficient and misleading it could be dangerous. It ignores most investors real time horizons, which aren’t usually three weeks. It ignores investors tax positions – there might be some tax advantages in selling down positions now. It ignores the current economic and political situations and developments in our country and globally that are certainly driving recent volatility in equity markets.
My point here is a simple one. If your financial goals and investment time horizons are longer than three weeks, wing it advice can be downright misleading and even dangerous. It is so important to have a sound financial and investment plan, which includes both long and short term risk evaluation, management and reduction strategies.
The Bottom Line: Take the talking heads with a grain of salt.
–Michael Ross, CFP®