When it comes to personal finance, it seems as though having plenty of information is not all it takes to make informed decisions. In the area of investing, for example, a number of studies show that, as a rule, the returns obtained by individual investors are lower than those of the benchmark indices – despite the increasing availability of information from a wide range of sources to provide guidance. 

It seems that, mainly when trying to fine-tune their strategy based on short-term information, investors develop certain perceptions and succumb to various biases that impair their decision-making. So perhaps the problem isn’t really with the quantity of information consulted, but how that information is interpreted. 

Here are some guidelines to help make sense of it all. 

What are the main information sources available? 
Whether it’s a matter of investing, financial security, retirement planning or any other aspect of personal finance, the information sources available to you can be divided into four main categories:  

• the advisor you do business with; 

• specialized resources (financial newsletters, asset management or financial institution websites, etc.); 

• the media; and 

• personal contacts.  

Of these, the advisor could also be a valuable resource for interpreting the information from other sources, based on each client’s specific situation. A column by an economist, a podcast by a successful investor, or the experience of a friend who did well last year can all be useful, but your advisor can help you to better interpret these through the lens of your own reality and your goals.  

How to assess the usefulness of financial information 
The relevance of a given piece of financial information will usually be a question of context. If the information is not specifically related to your needs and long-term planning, it could often be better to ignore it or pass it along to someone who would find it more relevant. By mistakenly applying it to your own situation, you might end up looking at some poor decisions. For instance, investing tips from office colleagues might work for them, but lead to unwise decisions if taken at face value by someone who doesn’t share the same risk tolerance or long-term goals. 

More specifically, here are three questions that it might be worthwhile to ask yourself about information relative to your personal finances. 

• Is this information relevant to me?  
  In theory, any trend affecting the economy or specific economic sectors is likely to be reflected in the short- or long-term financial situation of an individual investor. In practice, however, it is important to distinguish between those that could motivate financial decisions in the short term – such as rising inflation and interest rates – and those that might have only a slight impact on your long-term strategy – such as a market correction. 

• Is it already ancient history? 
  Some financial information is typically related to past events. For example, an economic recession is defined as at least two quarters – i.e., six months – of negative growth. Historically, recessions in Canada have an average length of 11 months. So once the economy is officially declared to be in a recession, the chances are good that a recovery is just around the corner. The same goes for financial markets: by the time a bear market – a drop of at least 20% in the index – becomes official, much of the associated losses have already occurred. Furthermore, by the time individual investors hear any financial news, it has already made the rounds in professional circles, and institutional investors have already acted on it. According to a number of studies, the propensity of individual investors to get on the bandwagon too late – or to get off at the wrong time – ends up affecting their returns in comparison with those of the indices and major investors. 

• Is my game plan up to date?  
  Before acting on a piece of information that has come your way, the most important thing might well be to take a look at the various components of your overall strategy. For example, if the economic ups and downs end up affecting you, do you have an easily accessible emergency fund, in the form of a tax-free savings account (TFSA) or line of credit, for example? Do you have a debt management plan that will help you cope with a long period of high interest rates? Or if there’s a downturn in the stock markets, do you know if your long-term projection scenarios have already factored in this kind of short-term decline? 

Clearly, the difference between good and bad information does not necessarily depend on the source. Instead, it’s often a case of how you interpret it. If in doubt, ask your advisor to help you sort things out.