What Useless Financial Data and Information to Ignore – And What Actually Matters
How many times have you seen financial data and wondered, what does that really mean? Consumers are often exposed to otherwise useless information meant to influence their habits. There’s so much useless, fake data out there that will either scare you – or make you think that you’re making more progress than you actually are. Let’s dive into the types of financial data you should ignore – and how to move forward.
What qualifies as “useless financial data”?
Sometimes, information is just that – information. In today’s media, headlines are often used as a tool to scare you into acting a certain way. These are all very real (and recent headlines):
Economists see recession coming.
Wall Street climbs ahead of election day.
Latest weekly jobless claims jump.
Mortgage rates fell for the second week in a row.
Some of these articles may elicit a positive response. Others, a negative response. But either way, these catchy headlines are meant to do one thing, and one thing only: stir emotion…which may or may not make you want to act.
So what do we mean by “useless financial data”? Let’s take a look:
Quarterly informational blasts from financial institutions: This can include anything from stock market trends for the week or the month to global equity trends per quarter. Unless you work as a day trader, these nuggets of information are pointless. You’re looking at the bigger picture (5+ years at a time), not one quarter at a time, to see trends related to your financial well-being. Many companies generate these to validate their existence, not to provide you with actionable information.
Economic indicators: Economic indicators are pieces of information that help businesses try to forecast economic conditions so they can make business decisions such as whether to hire more staff, expand capacity, or close a location. Common economic indicators include interest rates, government policies, and home sales. Wal-Mart even uses weather data to make business decisions. Does this mean you need to start tracking weather data for your portfolio?
No! While economic indicators can be valuable information for business forecasting, it generally leads individuals to make decisions based on short-term noise.
Sports data: Or, statistics and data meant to predict future game results. Sports data is a perfect example of often useless data because the forecasting models are often unreliable. How many times have you seen these modules meant to predict whether a certain team will win, or a specific horse will cross the finish line? There are no statistics that can really and truly accurately predict future game results. Studies have shown that data like this is dependent on assumptions and real-world constraints. The recent rise in sports betting relies on a stream of useless data that gamblers can wager on.
Everyday stock news: How many times have you turned on the TV these past few years, only to see headlines like The Market Drops 4%, or DOW Jones Marks Largest Loss Since X Year? Focusing on the day-to-day headlines makes no sense for most investors. You’re thinking of the big picture, and reacting to short-term news won’t help you – it’ll only scare you.
Those are just a couple of prominent examples. Let’s face it: the financial services industry loves to send out waves of useless and hard-to-decode information to justify its existence. Focus on what really matters – the long-term, big picture. Short-term noise is useless for your long-term personal financial plan.
What financial data actually matters
Financial data is only one part of the picture when it comes to you and your finances. Not every piece of information is worth your time – or your stress. So what financial data should you pay attention to? Let’s dive into what actually matters:
Your long-term financial plan: This one seems easier than it looks. Don’t let little tidbits of information, big headlines, or “locker room talk” influence your habits and steer you off course. Always remember to stick to your long-term financial plan. What matters most to your long-term financial plan is very different from what is happening in the news today. For example, how much you are consistently saving toward your retirement goal is vastly more important than whether the S&P 500 went up or down today or what the unemployment numbers were for last quarter. Instead, your retirement income plan, your spending plan, and savings patterns are the data you would need to check your progress toward your retirement goal.
Long-term, risk-adjusted investment performance: Your monthly statements are basically useless data when it comes to your long-term financial plan. Monthly statements show you what the value of your account was at the beginning of the month, any activity that occurred such as receiving dividends and interest, contributions, distributions, fees, and the value of the account at the end of the month. By the time you look at the statement, it is already old information and only shows you a fraction of the information you need for a long-term plan.
Instead, focus on the long-term performance of your accounts and making sure your investments fit your risk profile. And remember, markets will always go up and down. During your lifetime, you will likely see several significant drops and several significant gains. But even big market drops are relatively short compared to the significant increases seen in the following days, months, and years. During market volatility, resist the urge to act on your emotions and stop checking your statements so often! Selling stocks when the market drops can make your losses more permanent. It’s important to keep investing, even when the market is volatile.
Your values: Your values should drive your plans. Be strategic and make sure your actions support your values. Don’t let your emotions affect your financial goals. It can be increasingly difficult to separate emotions from your finances, especially when the goals are emotional in their own right: buying your first house after your divorce, helping send your daughter to college, having the freedom to make choices in line with your values, or just retiring on time.
Money is never just money for so many of our clients. Money represents financial freedom, hope, and comfort, among other emotions. But that doesn’t mean you should let your emotions get tangled up in your finances. Tackling your finances with a clear mind will lead to greater gains down the line.
Practice strategic financial ignorance: You’ve likely heard the saying, “Ignorance is bliss.” By selectively and strategically ignoring certain pieces of information (as long as this avoidance doesn’t actively harm us), we can achieve peace of mind that we wouldn’t otherwise have. Strategic financial ignorance is essentially purposeful information aversion.
The key to strategic ignorance is to ignore certain pieces of information if they might not be helpful to us in the long run. And remember: it’s okay to ignore the media!
Next time you see an attention-grabbing headline or market update come into your inbox, remember to stay the course. Some financial information is meant to influence your emotions and frighten you when you should be focused on sticking to the plan. Just like sports statistics, economic indicators can’t truly and accurately predict the future.
What can you do to safeguard yourself from making rash financial decisions? First, make sure to consult with your financial advisor. At 3 Financial Group, we can help you plan long-term and help you better understand which financial information is helpful to you – and which information is harmful.