In our office, we talk quite a bit about risk.  Financial risk, and more importantly, identifying strategies to help clients mitigate or manage those risks is a very real and important component of the financial planning process.

Generally, our discussions regarding risk focus on helping clients structure their portfolio to reflect their risk profile.  Or, making sure they have adequate insurance protection to avoid a catastrophic financial outcome.  However, it is much more difficult to protect clients from headline risk.

What is headline risk?

Well, the funny thing about headline risk is that it is not a real risk in the traditional sense.  Instead, headline risk is simply a person’s perception of risk that is created by overly ominous news headlines.  In today’s connected world, headline risk is everywhere! We are constantly reminded of economic news, political news and of course how the markets are performing on a daily and sometimes moment by moment basis.

As harmless as headline risk may seem, it can impact a person’s behavior and create a huge deterrent in making progress towards long term financial goals.  People can get so distracted and concerned with the apparent daily perils, that a sense of panic sets in.  In turn, they can become frozen in indecision, or even abandon a sound investment strategy.

Most of you can recall the fear and anxiety you experienced in late March 2020 at the height of fear surrounding the COVID-19 pandemic.  Most of the pundits interviewed on the business network and other news channels incited fear by recommending that investors “Sell while you can!” or quipped, “There is no ‘floor’ on how far stocks can fall!” - even as the markets had already tumbled significantly. 

Hopefully, most didn’t react to the “experts” sell at all cost guidance, because in only a few short months a recovery of historic proportions had occurred.

How can you avoid headline risk?

Recognize the sources or providers of headline risk and remove them from your daily routine.  Also, keep in mind that when it comes to the financial markets, bad news is generally not that bad and good news is generally not that good. Most importantly, have a financial game plan. 

Having a comprehensive financial plan that embeds the potential of both financial and personal setbacks can instill a sense of empowerment, allowing you to accept short term uncertainty and embrace the opportunity of the future!