With COVID-19, The Financial Media Is Doing More Harm Than Good
March 19, 2020

With COVID-19, The Financial Media Is Doing More Harm Than Good

My brother once told several boys to capsize their ocean-going canoes during a Canadian winter. He worked as an instructor at a wilderness survival camp. “When faced with a dangerous situation such as that,” he said, “we trained them to keep calm and follow the lessons we have taught them.” When people panic, they don’t think clearly. That’s why Zen-like calm is key to survival. 

It’s much the same with investing. Unfortunately, most financial media sources (it seems) want us to lose our minds. When markets crash, they rarely offer levelheaded advice. Instead, they report minute-by-minute stock market moves. They induce a lot of panic when they announce every asset class is falling and that it might get worse. In a survivalist’s boot camp, that’s like someone screaming, “Last year, five canoeists died where you are right now! You might die! You might die!”

Needless to say, that doesn’t help.

In times like these, it’s tough to ignore market news. But investors need to try. Much like capsized canoeists, we need to stay calm. After all, diversification is still an investor’s best friend. And not everything is sinking. I know…that might not jibe with the latest headline. Yesterday, I watched a financial news network showing charts of falling bonds. We know that stocks have fallen. But when bonds fall too, this one-two combination can cause widespread panic.

Before I introduce a dose of common sense, consider the role of market-based news. It isn’t designed to educate… and it never will. Instead, it pours fuel on our emotions. Increased pulse rates draw more eyeballs. More eyeballs increase viewership, and increased viewership boosts advertising dollars.

Yes, COVID-19 is spreading. That’s why we should help one another to keep safe distances, keep our hands clean and (when needed) self-isolate. And while many people are worrying about their retirement accounts, the media does far too little to educate investors and help keep them calm. 

Consider this chart. You might see something similar on a news source today. It shows Vanguard’s Total Bond Market Index Fund (VBMFX). From this perspective, it looks like a sinking ship. The headline might read, “Not Even Bonds Can Help You Now!”

Vanguard’s Total Bond Market Index
March 6, 2020 to March 18, 2020

Click to Enlarge

Vanguard's Total Bond Market Index Chart

But don’t panic in these waters. Just step back, breathe, and broaden the perspective. Below, I’ve inserted a chart comparing Vanguard’s Total Stock Market Index (VTSMX) with Vanguard’s Total Bond Market Index (VBMFX) and Vanguard’s Short-Term Bond Market Index (VBISX). You can see their year-to-date performances, as of March 18, 2020.

VTSMX, VBMFX, VBISX January 1, 2020 – March 18, 2020

Click to Enlarge


As shown in red above, a $10,000 investment in Vanguard’s Total Stock Market Index (VTSMX) fell to $7,193.22 by March 18, 2020. That’s a decline of almost 29 percent. But as seen in dark blue, the same $10,000 in Vanguard’s Total Bond Market Index (VBMFX) fell to just $9,942.37. That’s an overall drop of about 0.57 percent. And $10,000 in Vanguard’s Short-Term Bond market index (light blue) actually made money. It increased to $10,089.75, for a gain of 0.90 percent.

Few (if any) television networks would show this chart. But they should. In times like these, helpful education should trump fear-based news. 

In my book, Millionaire Teacher (Wiley 2011, 2017) I said investors should build diversified portfolios of stock and bond market index funds.

Let me explain how a bond index fund works.

For bond allocations, I recommended intermediate-term or short-term bond index funds. They’re safer than long-term bonds. For example, a short-term bond index includes several different bonds with short (1 to 3-year) maturities. Assume a 1-year bond is in the index fund. When it expires, the fund manager replaces the expired bond with a virtually identical, new 1-year bond. When bond prices fall (as they are falling right now) the new 1-year bond will be purchased at a lower price.

That’s why short-term bond market indexes rarely record calendar-year declines when bond prices fall. Unfortunately, that doesn’t apply to long-term bond market index funds. For example, if such an index included a bond with a 20-year maturity, the fund will hold that bond until it expires. At that point, the fund manager would buy a virtually identical 20-year bond to replace it. But even if bond prices drop over the next few years, such an index is stuck with the longer-term bond until it expires.

That isn’t always bad. Long-term bonds usually pay higher interest than short-term bonds. But as with any financial asset, there’s no free lunch. Investors take higher risks when they reach for higher yields.

This brings us back to the financial media. Several news sources claim every asset class is falling. They show cherry-picked charts that freak people out. But they won’t likely show a year-to-date chart representing a short-term or intermediate term bond market index. They won’t explain how such bond index funds work. Instead, they put microphones on “experts” who claim to see the future.

But investors should ignore those chumps. Instead, maintain a diversified portfolio of low-cost stock and bond market index funds. Stick to your original goal allocation. Don’t drift from that plan because of market news or moves. And don’t let the media press your panic button. The financial media, after all, does far more harm than good.

Shorter-Term Bond Market Indexes Don’t Sink During Storms

Year Vanguard Short-Term Bond Market Index (VBISX) Vanguard Long-Term Bond Market Index (VBLAX)
2005 1.31% 5.32%
2006 4.09% 2.67%
2007 7.22% 6.59%
2008 5.43% 8.64%
2009 4.28% 1.76%
2010 3.92% 10.27%
2011 2.96% 27.06%
2012 1.95% 8.49%
2013 0.07% -9.13%
2014 1.16% 19.72%
2015 0.85% -3.47%
2016 1.41% 6.41%
2017 1.10% 10.76%
2018 1.27% -4.51%
2019 4.77% 19.10%
2020 (to March 18th) 0.90% -3.57%

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This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.