WHEN I WAS a columnist at The Wall Street Journal, I repeatedly heard two complaints from editors, especially those with little understanding of personal finance: “Our readers want something more sophisticated” and “Where’s the news hook?”
That, in a nutshell, explains why the media can be so bad for our financial health. When print and broadcast journalists cave in to the twin imperatives of timeliness and sophistication, they’re almost guaranteed to lead their audience astray—for three reasons:
1. News is the cattle prod that transforms sound financial strategies into foolishly frenetic activity. I enjoy following the market’s daily drama as much as the next person. But let’s be realistic: It’s about as meaningful as an episode of the Kardashians.
Is there any doubt that we’d all make wiser portfolio decisions if we didn’t know how stocks were performing every second of the trading day, if there was less pontificating about the market’s direction, and if we couldn’t buy and sell investments with just a few computer clicks?
Indeed, I’d argue there’s very little financial news that everyday Americans need pay attention to. I think the new tax law is important, in part because it makes carrying mortgage debt less attractive. I think the new no-minimum policy for Fidelity’s mutual funds is intriguing, because it makes it easier for cash-strapped investors to get started in the financial markets.
What it comes to managing a family’s finances, what else of importance has happened over the past year? Give me a few minutes, and I’m sure something will come to me.
2. Sophistication is an excuse for Wall Street to sell us high-priced garbage we don’t understand. Give my old editors their due: Wealthy folks—like those who read The Wall Street Journal—do indeed believe they ought to own more sophisticated investments, like hedge funds, private equity, real estate partnerships and leveraged loan funds.
Wall Street happily obliges, forever cooking up convoluted investments that are sold by glib salesmen to clueless investors. Almost invariably, these products combine two explosive ingredients: fat fees and leverage. The fat fees enrich Wall Street, while the leverage will impoverish the product’s owners, should anything go awry.
My contention: Whether someone has $50,000 to invest or $50 million, a simple portfolio of market-tracking index funds makes ample sense. Sure, the person with $50 million may need to worry more about taxes and could require a more involved estate plan. But that’s pretty much it.
3. There’s so little of value that we can say about investing—and so much about broader personal finance issues. If you insist on sophistication and on a news hook, you’ll inevitably spend most of your time writing about the financial markets.
Every trading day, the markets give reporters something new to write about. Every year, there’s some new investment strategy that promises endless riches. None of this, however, changes the brutal mathematics of investing: After costs, the vast majority of investors will always end up lagging behind the market averages—and would have fared far better with index funds.
But while investing is a loser’s game, other financial issues are more promising. We can greatly improve our financial lives by buying the right-size home, getting rid of credit card debt, making full use of tax-favored accounts, handling our taxable account with care, purchasing the right insurance, making sure all debt is paid off by retirement, thinking carefully about when to claim Social Security, organizing our estate, raising money-smart kids, being thoughtful in how we spend and—most important—saving diligently.
Occasionally, these topics will offer a news hook, but not often. Some of these strategies involve a degree of sophistication, but most don’t. Yet this is the stuff that truly helps everyday Americans to prosper financially.