It starts with a stock market slump. Concern escalates to worry as you watch the financial news describe the precipitous drop—and speculate on a worsening outlook. Worry becomes full-blown anxiety as volatile markets devolve into a larger downturn.
It’s normal to experience anxiety and unease during turbulent stock markets or in the depths of a bear market. And these feelings aren’t just in your head. A 2014 University of California, San Diego study suggests that daily fluctuations in stock prices can have an almost immediate impact on the health of investors. The study found sharp stock market price drops are accompanied by an increasing number of hospital visits over the following two days—especially for mental-health reasons.[i]
Besides the potential physical and psychological toll, financial anxiety can also cause investors to make emotionally driven mistakes that could imperil their long-term financial goals. However, there are positive steps you can take to help combat those stressful feelings and avoid making costly investing mistakes that could jeopardise your financial future.
Take a media break
The addictive ping of social media and the squawk of always-on news can be constant sources of anxiety during market downturns. It’s good to stay informed, but spending too much time subject to relentless market updates and binging on social media can be detrimental if you’re not able to find some distance and regain perspective on current events or your longer-term investing goals. Consider taking a break from the news and social media to help keep yourself on an even keel. Maybe limit yourself to a set amount of time per day or per week. Stay informed, but try not to fixate on day-to-day market movements. Watch out for sensationalism and opinion in the content you consume and compare them against verifiable facts. In particular, social-media platforms or online blogs can often harbour hastily written or poorly researched information from dubious sources. So keep your guard up to avoid investing tips from sources lacking ethics, expertise or both.
You can get a compound effect if you layer more positive behaviours on top of your media break. For example, when you feel the social-media spiral and the financial news pulling you down, spend some time outside, go on a walk, start a project or get some exercise to help you reset your frame of mind.
Find a way to feel in control financially
Anxiety often comes from a lack of a sense of control. You may feel like events are sweeping you up and you’re powerless to do anything. Even though market moves are outside your control, you’re far from powerless during market downturns. There are a number of actions that can help restore your sense of financial control and curb anxiety.
- Get your financial house in order: Investments are only one part of your overall financial picture. Exert financial control where you can. If you don’t have a financial plan, sit down with everyone affected by your monthly budget to prioritise necessities. If you’ve already got a financial plan, revisit your budget and priorities to make sure you know where your money is going. Then consider trimming any excesses you find. To help your short- and medium-term finances, make sure you have—or are working towards—an emergency fund to cover at least three months of expenses. An emergency fund can help if you encounter unexpected expenses or lose a portion of your income.
- Revisit your investing goals; rebalance your portfolio if necessary: If you’ve got a financial plan in place, but it’s been a while since you’ve reviewed your previous goals in light of recent life events, now might be a good time to revisit it. If you find your long-term goals have changed or your portfolio has strayed too far from its targeted asset allocation, you might need to rebalance to get back in line.
- Reframe “doing nothing” as an active choice: When markets are pitchpoling, it can feel like you’re tumbling along with them. It’s common to feel like you need to do something—others may be selling out of the market and insisting you should too. However, those feelings could move you further away from your financial goals if you sell at the wrong time and then miss out on a subsequent rebound. So what can you do? Doing nothing may be a better option if you already have a prudent investing plan with an optimal asset allocation. This may not feel good in the moment, but you can mentally reframe it. Think of it as an active decision to continue along a path that will likely pay off if you’re able to remain disciplined over the long run.
Lean on a trusted adviser for help
Financial anxiety can make you feel as if you’re in over your head and you don’t know what to do. We believe the practices presented in this article can help you feel calmer and more in control. But remember, you don’t need to go it alone. Working with a trusted investment professional can serve as an outlet for your financial anxieties. If you don’t have a financial professional with whom you work regularly, now might be a time to find one. Think of an adviser as a financial counsellor who can help you stay on track with your financial plan as you navigate whatever challenges you’re facing.
Your money manager should help educate you about common investing biases, such as myopic loss aversion, which describes the human tendency to feel the pain from losses much more than we feel the joy from gains. This bias has led many investors to sell stocks low after a crash—only to miss out on subsequent gains whilst waiting to get back into the market. Having open and honest conversations with your financial professional can help you avoid making mistakes that could significantly decrease the likelihood of achieving your long-term financial goals. The more frank you are with your investment professional, the more he or she can help set you up for financial success. A good professional should consider the curiosities, hesitations, passions and fears you’ve discussed to personalise their service and help you gain more confidence in your plan.
Financial anxiety is a common problem. Using some of these techniques to help give yourself more control and comfort can be a great first step on the path to a better financial future.
[i] Joseph Engelberg and Christopher A. Parsons. “Worrying about the stock market: Evidence from hospital admissions.” Rady School of Management, University of California at San Diego. October 2014. https://rady.ucsd.edu/faculty/directory/engelberg/pub/portfolios/HEALTH.pdf
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Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments Canada and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments Canada will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.
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