Categories

December 11, 2006

Why You Shouldn’t Listen to the Financial Media (and What They Don’t Want You to Know)

Here are some thoughts from the wonderful book The Bogleheads’ Guide to Investing (I LOVED the book — see my rating for details ) on why you shouldn’t listen to the financial media:

Whether it’s newspapers, TV, radio, or whatever, all media have one primary goal: to attract and hold an audience. That’s the key to making money in a media business. However, when it comes to investing, it’s not always a win for the audience.

A few thoughts here:

1. This is one thing I hate about much of the printed personal finance publications out there. They often seem like investment hype-fests. They run through The 10 Must-Own Mutual Funds, Hot Stocks for the New Year, and the like issue after issue. It gets old quickly.

2. Listening to and acting on all the advice out there is a recipe for disaster. Not only will it throw you off from your investing strategy, but it will rack up significant investing costs (due to frequent trading), which hamper your overall results .

3. I try to avoid all this noise, but it’s hard. When someone makes a compelling argument for an investment, it’s in many people’s nature (including mine) to want to jump on it. I have to remind myself that by the next issue, they’ll have forgotten about this investment and moved on to another one. I can’t afford to do that with my portfolio.

4. I often wonder what the total return would be if every paper, magazine, TV show, etc. went back five years and calculated the return for all the investments they’d recommended. I’m sure it wouldn’t be pretty. I’ve seen pieces where magazines went back and reviewed their recommended list of investments that were detailed in one article previously, but I’ve never seen a comprehensive review of all the investments recommended.

5. I try to eliminate investment hype on this blog, but the same rules that apply to other media also apply to Free Money Finance. If what I’m saying doesn’t jive with your investment strategy, then it’s ok to consider what I say, but don’t act on it without thinking whether it’s right or not. After all, your money is your money (it’s not mine), and you have the ultimate responsibility for it.

Later on in the chapter, the book lists three quick bulletpoints on what the investment media don’t want you to know — all centered around the fact that effective investing can be incredibly simple if you:

• Create a simple, diversified asset allocation plan.

• Invest a part of each paycheck in low-cost, no-load index funds according to your plan.

• Check your investments periodically, rebalance when necessary, then stay the course.

Good advice from the Bogleheads. For mort thoughts on investing, see Best of Free Money Finance: Investment Posts .