Are You Really Getting the Information You Need?

It sometimes seems as though our country is caught up in a kind of investment frenzy. Examples: minute-by-minute coverage of the stock market on cable TV, stock chatter at work or at social get togethers, big headlines whenever the stock market either tumbles a few percentage points or hits new records, and now the latest phenomena, day-traders. But for all the hoopla, I think it equally plausible that the great majority of people are paying far less meaningful attention to investing than any of this might suggest.

Can following the ups and downs of the latest hot stock or the stock market as a whole be considered "meaningful attention"? I think not. No, by "meaningful attention" what I am referring to is a focus on the kinds of factors that have been shown through past experience to be related to future investment performance. More about what these factors are and where to get information about them shortly.

I have been writing these newsletters for several months now. The content has been based on my 14 years of experience as primarily a mutual fund investor during which time my previous non-mutual fund savings increased in size approximately 13 times through a combination of capital appreciation and higher fixed rates of return on bonds than available in any bank savings account. But if investing in mutual funds (and also stocks) is so much superior to not investing in them for people's future well-being and for funding their retirement, why is it so difficult for many people to get started, or when they do start, to recognize the need to make a small extra effort in information gathering that may make the difference between mediocre results and outstanding ones?

Here are some of the most important reasons that come to mind: (As a Ph.D-level counseling psychologist in my first career, I think I have learned a lot about people and investing over the years.)

1. There appears to be a tendency many people have toward a kind of investment aversion - that is, it is very hard for them to get an investment program going, especially one that involves investing in stocks. I know about this kind of avoidance first hand - for the first 40 yrs of my life I too experienced this. I remember thinking your savings are too important to put them at risk. The notion that investing may just be another form of gambling certainly helps to keep many people away.

2. Attitudes towards investing may originate early on, reflecting the attitudes displayed by one's parents. Once formed, these attitudes seem extremely resistant to change. For example, as a child growing up, we had an acquaintance whom my parents thought was too involved in investing in individual stocks. This had the effect of making me think that such investing was akin to a vice. But, on the other hand, for those persons who parents were considerably successful in such investing and as adults followed in their parent's footsteps, they now are probably very hard to convince that at least some of their investments might be better off in mutual funds.

Now that many work settings routinely bring investing much closer to people's everyday lives as part of employee benefit packages, many people are being forced to consider investing options they otherwise would probably not have considered.

3. The main reason that many people have for not investing in financial assets is that they need to spend everything they earn just to pay their current bills with little or nothing left over to cover future needs. But do these people expect to keep working forever? If someone is to ever stop working with any more than just a subsistence check from Social Security, they will need to acquire an additional source of income. This is why so many people are now recognizing the role of their investment packages available at their work, such as through a 401k.

4. Another type of "investment paralysis" comes when recognizing that the stock market has already risen so much in recent years. For someone who has not participated, or was in earlier but already sold out, there is the fear that if they invest now, it may be much too late and that they may enter just in time for stocks to take a big dive.

5. People tend to overreact to the fact that some of the "expert" investment advice out there tends to be contradictory and that even the "so-called experts" are sometimes completely wrong. They therefore wrongfully conclude, I think, that any such investment knowledge upon which the advice may be based is essentially worthless and no longer give much credence to seeking it out. As a result, I would suggest that there is a kind of pervasive cynacism among many people that anyone or any source of information can really give them the kind of data that will lead them to be successful within the realm of investing.

Of course the experts and the outcomes predicted by their data are wrong at times. But you should not throw out the baby with the bathwater! A much greater percentage of the time the data is on target and will improve your investment performance if the underlying trend is understood and followed than is the case that it is wrong.

Widely Available Sources of Information That Can Greatly Improve Your Financial Health

In spite of what many people may believe, the reality is that there is a whole lot of excellent information out there which is readily available to virtually everyone who takes the time to look.

Far too many people are merely using fund prices and performance figures as their only source of input when making decisions regarding whether they should purchase or sell funds.

Here are some of other sources of information that you should consider following on a regular basis. They are presented in order of their importance:

a) Government and other economic statistics available in the business section of your daily newspaper or even on radio or TV newscasts. These include such data as the monthly unemployment rate, the consumer and producer price indexes of inflation, consumer confidence, and several others. The reason it is important to pay attention to this data is because they have a moderate to high degree of relationship with how various categories of financial assets perform.

b) Good financial news coverage as available in such publications as The New York Times and the Wall Street Journal, but even in most ordinary daily newspapers as well.

c) Finally, a limited amount of investment commentary as available on a few well-respected television shows such as Wall St. Week or the Nightly Business Report, in magazines such as Forbes or Fortune, and on radio shows such as the syndicated Bob Brinker's call-in show.

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Because peoples' attitudes toward investing as well as money and saving all seem to be so firmly entrenched as I have suggested in the 5 items above, there may be little I can say that will serve to convince anyone to set up an investing program along the lines I have outlined in these newsletters. Those people that are already investing for their futures probably do not need to be convinced any further. Those people, on the other hand, who are not already convinced will probably continue to be conditioned by their earlier experiences and skepticism not to take what I am saying too seriously.

The way I see it life is filled with almost unlimited opportunities but only relatively few ever dare to explore far enough to see whether their lives could be significantly improved by trying out some of these opportunities.

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