Arizona Republic – Oct. 19, 2008 – Caution: Stress ahead.
All the signs point to a bumpy, winding road for the stock market in coming months, with plenty of washed-out bridges, potholes and other hazards.
Everyone will handle the journey a bit differently, but nobody should make key money decisions in a stressed-out mode.
“Stress tends to narrow your focus, so you make poor decisions and irrational ones,” said John F. Murray, a clinical and performance psychologist in Palm Beach, Fla.
With that in mind, here are some ways to deal with anxious moments that lie ahead during a tumultuous phase for stocks and the economy:
â€¢ Adjust your perception if necessary: Do declining stock prices represent a terrible destruction of wealth or do they make possible profitable bargain-hunting?
Does the market itself become more dangerous as prices sink or less risky?
You can argue either way. The approach you choose can sway your satisfaction, long-term staying power and thus success as an investor.
“Researchers have found that the most well-adjusted people are able to perceive some value or gain, a silver lining if you will, in (a) loss or negative life event,” wrote Sonja Lyubomirsky, a California social psychologist, in a recent blog posting about financial tumult and stress.
There’s no law requiring you as an investor to assume the worst. Warren Buffett put it best last week when he wrote, “Be fearful when others are greedy and be greedy when others are fearful.”
â€¢ Seek control where you can find it: What makes those 700-point-down days in the stock market so traumatic is a feeling that such tectonic shifts are beyond one’s control. They are.
But there are other things you can control, like choosing not to watch wild market swings in real time.
Also, you can control unhealthful reactions to market stress such as smoking or overeating. Instead, go for a walk or pursue other exercise activities to release endorphins.
Those are some of the stress-reducing tips offered by the American Psychological Association.
“Focus on things you can control and that are meaningful,” Murray said.
â€¢ Worry over only a portion of your portfolio: Time might not heal all wounds, but it does provide extra opportunities for stock prices to bounce back.
Don’t worry as much about assets you won’t cash in for, say, 15 years, compared with those you’ll need soon, said Russ Biehl, a financial adviser at Classic Investment Management in Scottsdale.
Most people have different investment baskets – some for long-term retirement planning, others for short-term needs.
Successful investors learn to segregate mentally their riskier holdings from the rest, Biehl said.
â€¢ Devise a plan: As corny as it sounds, drawing up a financial blueprint can ease anxiety.
“For a lot of people, all they want is a plan or strategy to hold onto,” said Jay Penney, a financial adviser in Scottsdale.
The Financial Planning Association identifies several key elements of a plan, including an emergency cash fund to meet at least three months of living expenses, a budget to make sure spending doesn’t outpace income and an investment portfolio that’s diversified among various securities and asset types.
It helps to articulate your goals and investment time horizon and to brainstorm ways to manage your finances more effectively.
Then you will want to adhere to your plan and review it periodically.
“Putting things down on paper and committing to a plan can reduce stress,” notes an article by the American Psychological Association.
â€¢ Don’t assume the worst: Many people “catastrophize” or expect things will never improve, Murray said. That’s related to another stressful behavior, “globalizing,” or spotting problems everywhere you look, not just in your portfolio.
In a financial context, Penney cites a related concept, “extrapolation delusion,” which refers to the tendency of people to assume bull markets will rise forever and bear markets will keep plunging until stocks become worthless.
Such thinking is both stressful and inaccurate.
“So you want to take it in small doses and minimize rather than catastrophize,” Murray said. “Be patient, realize things will get better, look for opportunities and control what you can.”