It’s a formidable task to sort through the barrage of financial information from all the various media sources. It can be difficult to separate fact from fiction. Information is often slanted when a reporter or writer has a subtle personal or political bias. Even heavily biased information can appear objective if the messenger has a strong belief that their story is factual. While it’s always necessary to filter information for personal bias, financial messages designed to intentionally mislead can be especially harmful. We are constantly bombarded by advertisements and headlines that deliberately twist the facts to scare us and encourage us to buy products or services.
All of this may sound obvious; we should be smart enough to recognize when someone is trying to sell us something or trying to pull something over on us. However, we have to be diligent to differentiate between legitimate news and sensationalism. Producers and editors of financial magazines, television shows, and newsletters use exciting headlines to increase circulation and keep people tuned in. It is common for the media to exaggerate negative information to generate an emotional reaction. As an investor, you need to keep dramatic headlines in perspective and avoid changing course based on media hype.
A more sinister scare tactic is the threat of impending doom used by some unscrupulous people to sell products such as gold, variable annuities, and financial newsletters. Recently several gold dealers have been running compelling marketing campaigns to convince you that the financial world is on the brink of disaster. They use well known actors with an authoritative flare to scare you into believing your only salvation is gold. Depending on your situation, it may be logical for you to have some amount of gold in your portfolio. However, you don’t need to convert your entire portfolio to gold just because a few gold dealers imply they have exclusive access to top secret information predicting imminent financial demise.
You should also be on the alert for unethical firms who use scare tactics to sell variable annuities and financial newsletters. Some unscrupulous salespeople try to scare people into making inappropriate purchases in variable annuities by preying on their need for security. A variable annuity may be a good option, but don’t be tricked into buying something you don’t want or need due to exaggerated threats about a pending financial disaster. Additionally, I have recently observed a newsletter editor greatly exaggerate the impact of recent legislation to encourage people to buy his newsletter.
Appealing to our sense of fear is an age old sales gimmick. Be on your guard, marketing campaigns have become very sophisticated. Before making any changes, fully understand what you are buying and make sure it fits into your overall financial plan. Avoid emotional reactions to media hype and salespeople claiming to predict the future in order to sell their products.