The Independent Market Observer

Don’t Invest Based on the Headlines

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Nov 8, 2019 2:08:04 PM

and tagged Commentary

Leave a comment

investLast night, I spoke at a client event for one of our Commonwealth advisors. As usual, it was a great group—thoughtful, interested, full of great questions. And, of course, worried. Worried about politics, worried about the debt and deficit, and, most of all, worried about what all of this means for their kids.

What’s worth worrying about?

The substance of my typical talk is to look at what it takes to worry effectively. In the past several years, for example, we have been extremely worried about a weak dollar, as well as a strong dollar. We have worried about high oil prices, as well as low oil prices. About China’s rise, as well as China’s collapse. I could add other examples to this list, but you get the idea. The point, of course, is that the headlines generate most of the angst. Over time, however, conditions change and the world doesn’t end. This is the underlying idea that drives most of what we do here at Commonwealth. The world will keep spinning, and this too will pass.

Sometimes, however, things really are changing, and we need to respond to those changes. How can we tell what is worth worrying about, and what isn’t? The answer, which I hope won’t surprise you, is exactly the metrics we follow in the monthly economic risk factor and market risk updates. The metrics themselves are important. But even more important? How we look at them: not at the current number, necessarily, but at the change over time. Any individual data point may be nonsense. But if we look at changes over time, it gives us not only context but significantly more reliability.

How to worry effectively

That method works, but it is limited. It is a good guide for the next year (maybe two), but it doesn’t give us much guidance beyond that. When I talk to clients, their worries tend to extend beyond that time frame. How can we effectively game out (i.e., worry effectively about) events over the next 5 to 10 years?

The first step is to be very humble about our ability to do so at all. If I had been asked in 2009 whether the market would triple over the next 10 years, I would have said “not a chance.” Ten years ago, we were at the nadir of the crisis, and it was a real question whether we would even be here, as investors, in 10 years. Ten years before that, if I had been asked whether the market would collapse by 50 percent, recover, and then do it again, I would have said “no way.” A rational market couldn’t do that, right? But that is just what happened.

So, we have to be humble. But we can also make some conclusions based on the lessons we have seen repeatedly over various 10-year periods. First, people will be people and will keep making bad decisions, but the system will survive. Second, whatever happens will likely reverse. In a dynamic system like the U.S. economy, bad times will recover—and good times will collapse. Third, this pattern is normal, as economies do go in cycles, and nothing to worry about.

Rinse, wash, and repeat

When I talk to clients, these are the points I make. We are in a good period. At some point (probably not all that long), we will be in a bad period. But that will then reverse again, into another good period. If investors have a properly constructed portfolio, they will limit the damage from the bad times and be in a position to benefit from the good times. Rinse, wash, and repeat. None of which has anything to do with the headlines. Worrying effectively over the next decade is all about understanding what is normal—and not letting it get to you.

Although, of course, none of these points are reflected in the headlines. 

Subscribe via Email

Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®