Today’s newsletter features a great article in the NYT by financial columnist Jeff Sommer.
The news and images coming out of Ukraine are horrifying and my heart aches for the millions impacted by Russia’s aggression. It is difficult to imagine what they are going through.
The article begins:
The worse the news, the less you should think about it.
No, that’s not a good guide to life. but shutting out the din of current events is a reasonable approach when investing.
Sommer speaks with Richard Thaler, a Nobel Prize winning economist who pioneered the study of behavioral economics.
Follow the news, of course, and let your emotions flow. But don’t let them affect your investment decisions, he said. For that, be calm and stick to a plan. If you don’t have a good plan, then build one dispassionately.
Thaler goes on:
“My thing is, that we know that any sudden moves by individual investors are certainly no more likely to be right than wrong,” Professor Thaler said. “If anything, they’re more likely to be wrong than right because our instinct is to sell when markets go down and buy when they go up – and buying high and selling low is not a good strategy.”
He’s right – a dispassionately built plan is one the best defense against all the emotions of the moment.
For those who like charts – this one from Dimensional shows the market’s response to various crises over the years:
You can see that as scary as those previous crises were at the time, sticking with a balanced, diversified portfolio ultimately added to your bottom line.
With regards to your wealth focus on what you can control, tune out the noise, and diversify globally.
With regards to the suffering in the world, if you are interested in donating, I suggest taking a look at World Central Kitchen, a terrific organization that is a favorite charity of one of my clients and one of my favorite food bloggers, Deb Perelman of the Smitten Kitchen.
WCK is first to the frontlines, providing meals in response to humanitarian, climate, and community crises. They have served one million meals and counting to families across Ukraine, Poland, Romania, Moldova, and Hungary.