By Eileen Ortega, CTFA
Two years ago, as the pandemic infiltrated our lives, it brought with it a certain level of panic, or fear of the unknown if you will. As a result of the World Health Organization declaring Covid-19 an official pandemic, the Markets began a sharp decline, adding to the already anxious mood that had been permeating our everyday life.
As the world began to shut down, unemployment rose, businesses closed, and once again people began to feel like “this time was different,” and that while “The Great Recession of 2008” was bad, we had no idea how much worse this time would be, given the human toll we were beginning to see. Fast forward just a few months later, and as we adjusted to our new pandemic “normal,” the Financial Market had recovered and was on the cusp of reaching record highs. Despite the fear that many felt, the markets recovered spectacularly, in spite of it!
The bottom line is that we are human, filled with emotions that do not have a simple on and off switch. So how do we avoid making rash decisions when we are overcome with worry or panic?
Financial psychologist Dr. Brad Klontz, associate professor of practice in financial psychology and behavioral finance at Creighton University Heider College of Business was quoted in the following article (https://www.cnbc.com/2022/02/22/how-to-control-your-emotions-during-stock-market-volatility.html):
“Go ahead and panic,” Klontz said,” [but] don’t panic about the fact that you are panicking.”
My guess is that 99% of women have been accused of being “too emotional”, or “making emotional decisions”. My second guess is that each time you have heard it, you found it maddening. Emotions are what make us…. well, us. That is true for anyone. However, acknowledging and managing our emotions while making decisions is what allows us to maintain control over our success, particularly in our financial life.
HOW TO ENSURE REASON OVERCOMES PANIC
By taking the following steps in times of calm market cycles, we will be able to better heed Dr. Klontz’s advice:
1. Engage a Trusted Advisor
- By leaning on a professional financial advisor to oversee your investments and work with you to establish a long-term strategy, you will be able to shift the day to day “worries” about the market to someone looking out for your best interest and able to remain objective in the management of the portfolio
- A critical determinant of “Trusted” Advisor is someone who can work on your behalf while demonstrating empathy for how volatile markets may “feel.”
2. Establish a Financial Plan for YOUR Life and YOUR Goals
- The foundation for any financial plan should be the details of your personal situation, including but not limited to your Financial Assets, short- and long-term goals, income needs, risk tolerance, etc. This specific plan should be the basis for the investment strategy recommended, not the other way around. Like your doctor prescribing medicine tailored to your diagnosis, your investments should be tailored for the specifics of your life. Doctors do not have “models,” and neither should your investment advisor.
3. The Importance of a “War Chest” (the modern version of Money Under Your Mattress)
- The worst-case scenario for any investor is having to pull funds from the portfolio when the market is in a deep decline. To avoid this, keeping a separate “bucket” with sufficient funds to carry you through a depressed market will not only ensure your investments recover when the market turns, but it will give you significant peace of mind knowing that while your investments might be down, you will not have to realize any of these losses because your living expenses will be covered by the “safe money”. As the market recovers, the “war chest” can then be replenished, leaving the long-term success of your plan intact.
4. Defer to the Lessons of History
- Market history has done nothing if not taught us that corrections are inevitable and are caused by a myriad of global events. One is not like another in its intensity, duration, or cause; however, a common thread is that there is always recovery. An average recovery is approximately 12 months, but as we saw in 2020, can be dramatically shorter, or slightly longer. The bottom line is that we should expect it, and if we do, it may help to temper our feelings when it shows up. Not eliminate our worry but help us to manage it.
When all is said and done, emotions are messy. They are, at times, uncontrollable. What we can do is to accept them, experience them, and then set them aside to carry out the plan that will take us through the difficult situation. It is having a plan that brings us through the storm. The plan is what keeps us on task, regardless of how we feel.
“And some days life is just hard. And some days are just rough. And some days you just gotta cry before you move forward. And all of that is okay.”
Our fiduciary wealth management firm in Ponte Vedra Beach, Florida, helps women find their financial footing after experiencing transition in their lives. We invite you to schedule a consultation today.