Don’t Panic: Why Ignoring Headlines is Key to Building Wealth

FINANCIAL FRESHMAN #040

TL;DR → Because of volatility in the stock market, the mainstream financial media is filled with doom and gloom speculation on the future. “The Psychology of Money” teaches us that your success as an investor could be determined by how you respond in these small moments of terror. Don’t make an emotional investment decision.

Welcome Back!

We spent the last five weeks talking about nothing but income taxes. I enjoyed putting all of that knowledge onto paper, but I’m excited to get back to regularly-scheduled programming. In case you missed our “Tackling Taxes” series, I’ll link them here for your convenience.

This post is something that I’ve wanted to write about for some time now, and it’s become increasingly more topical over the last month or two. It’s about the mainstream financial media, and how it could potentially influence you to make a poor financial decision during volatile market conditions.

This may come across as more of a diary entry than these posts typically do, but hear me out. This is important.

March of 2025

Speaking of market volatility, let’s take a snapshot of what you would see today, in the event that you were glued to the financial news.

The thing is, each of these articles is rooted in truth—it’s been an awful few months for the stock market. As of me writing this, the S&P 500 is sitting at 5,581 points, which is lower than it was six months ago (~5,760). If market uncertainty and overall volatility continue, it’s entirely feasible that it will fall below 5,240, which would be lower than it was 12 months ago.

It’s uncomfortable to admit that investing in the S&P 500—widely regarded as a responsible financial decision—may lose you money over the course of an entire year. Even still, these example news articles are all speculative, and could lead to an emotional investment decision.

Rather than worry over headlines trying to predict the future, turn to history, where the resilience of the stock market is already written. Let me explain what I mean.

Emotional Investing

Many years ago, I read a personal finance book that quite literally changed my perspective on all things money. This book was The Psychology of Money by business writer Morgan Housel. If you’re interested, you can check out my formal recommendation here.

He discusses a number of immensely valuable topics in this book, but for today I’m most interested in the lessons learned regarding emotional investing, and how you should respond to inevitable market downturns.

Consider these teachings from Housel:

“Your success as an investor will be determined by how you respond to punctuated moments of terror.” (p. 77)

“It sounds trivial, but thinking of market volatility as a fee rather than a fine is an important part of developing the kind of mindset that lets you stick around long enough for investing gains to work in your favor.” (p. 162)

A fee, rather than a fine. Thinking of market volatility this way means viewing stock market declines as a necessary cost of investing rather than a punishment for making a mistake.

Housel also highlights how common these “necessary costs” may come due. In the 1,428 months between 1900 and 2019, the U.S. economy was in a recession for slightly more than 300 of them. 21% of the time, to be exact.

So, we’re faced with two realities. Humans are wired to react emotionally to bad news, and the media loves a crisis. But what exactly can the history books tell us about how the emotional investor would have fared?

The Media Loves a Crisis

Let’s think back to COVID-19, and check the financial headlines in the same way that we did today. Unfortunately, the same doom-and-gloom speculation was front and center.

Except this time, we have the benefit of hindsight to review the bigger picture. How quickly can you spot the financial impact from COVID-19 on this graph?

It’s there, and it’s certainly notable. The index went from 3,380 in February of 2020 to a low in the 2,400s in late March—losing almost 30% of its total value. But, how many months did it take to bounce back to 3,380? About 4…and then it was back to business as usual.

Review market activity from 9/11, the 2008 mortgage crisis, the 2011 European debt crisis, or the trade war in 2018. Each time, there’s a sharp decline followed by a recovery.

Remember that market volatility is scary, but responding with panic is optional.

Final Thoughts

Maybe you needed to hear this, or maybe you didn’t. There’s a number of truths here however that I hope you’ll reflect on. The stock market has had significant downturns in the past, and it will certainly have significant downturns again in the future. Especially if you have a large amount of money invested, you may see a significant drop in the overall value of your portfolio.

When in doubt, zoom out. History has shown us that there’s tremendous power in staying the course.

Financial Freshman