My home to office commute averages around 12 minutes, during which I enjoy listening to the news to catch up on current events. During my commute the day’s stock market figures are also announced. As a Financial Planner this information may seem useful, but it is not. Below are some of the reasons why I believe this information can be counterproductive.
Stock Tickers are Confusing
It is no accident that Las Vegas casinos use chips and tokens instead of actual money when playing their games. It tricks our brains into separating the value of the chips from the cash value the chip represents. Stock indices and the underlying stock prices have somewhat of the same effect. Individuals cannot easily mentally calculate a stock market point change into a tangible effect on their wealth. To do so, they would need to:
- Convert point change to percentage change
- Calculate amount of net worth invested in that index, adjust by percentage change
- Calculate overall net worth change based on proportional amount of wealth
All of this work only to realize these index quotes relate only to a single day.
Stock Tickers are Framed Too Narrowly
Stock tickers only tell you the change in one particular market segment for a particular segment of time, usually that day. For most people, that information has little relation to daily life. Even Charles Dow, founder of the Dow Index, did not watch his own index on a daily basis.
When investing in the stock market, you must take an ownership mentality. A stock is a partial ownership in a company, entitling you to a share of future income. Any business owner may benchmark her business’ performance on a regular basis. That process is helpful to evaluate areas of success, weakness and future opportunities. However, this process would not be repeated daily, weekly or likely even monthly. It would be too time consuming, confusing and not likely to produce useful information.
Too much time spent on daily monitoring of the stock market takes time away from activities that could be more productive.
Stock Tickers Distract Us from the Real Opportunities
Far too much attention gets placed on the investment component of individual’s personal financial situations. It is an important component, to be sure. There are plenty of examples of individuals who struck it rich from the one right pick. For every case of one lucky decision, there are many more stock picks that only produced average or even below average performance that we don’t hear about. For most people, long term wealth is built through a series of small decisions. Spending too much time focusing on investments takes time away from making those good decisions.
Time spent on investing should be focused on selecting an appropriate level of risk for your goals and situation, building a diversified portfolio of low-cost funds, sticking to an investment philosophy and regular review and rebalancing. Once this foundation is established, annual or biannual investment reviews leave time to focus on other value-added activities such as proactive tax planning, setting and updating goals, and managing behaviors to meet those goals.
For these reasons, you will never see a stock market ticker quote on our website. I do not look at these figures on a daily basis and for your financial health, I suggest you refrain from checking them daily as well.