Why It Pays to Ignore the Financial News

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When it comes to money, it often pays to ignore financial news. The media is in the business of selling news, and to do that, they sensationalize it. Fueled by the over-eager reporting, irrational exuberance can quickly turn to pervasive gloom. Neither state of mind makes sense. They’re both extremes that lead investors to make poor decisions.

A landmark Harvard study of investment habits (which my TIME Moneyland colleagues Gary Belsky and Tom Gilovich cite in their book) famously found that investors who consumed no financial news earned better returns than investors who were fed a constant stream of it. And the results were even more dramatic with regard to volatile stocks: In those cases, investors who learned nothing about their stock earned more than twice as much money as those whose trades were influenced by the media.

The national economic situation does affect our personal financial decisions to some degree. When unemployment soars, it’s important to maintain an adequate emergency savings and to limit your use of debt. When the stock market is down, you need to understand your investment objectives, and how these relate to your risk tolerance and your investment timeline. (And when the stock market is up, you need to ask the same questions.) But more important than the national economy is your personal economy.

(MORE: 64% of Americans Don’t Have $1,000 in Savings)

The foundation of a strong personal economy is education. To become a wise investor, you must be an educated investor. And you must recognize what you can and cannot control. The national (and global) economy affects your personal economy, but ultimately all you can control are your personal finances.

If you need more information on investing, go to your public library and borrow The Random Walk Guide to Investing [my review] or The Four Pillars of Investing [my review]. The Oregon Division of Finance and Corporate Securities features some excellent free publications for download, including The Basics of Wise Investing.

Read up on the subject, seek a professional adviser, and make your decisions from a position of knowledge and strength, not from a position of panic.

(MORE: 5 Ways to Keep Economic Crisis From Driving You Crazy)