Taking a broad financial planning view of what's going on in the world, I'd like to think we are making progress in getting the economy back to where it needs to be. However, that doesn't mean that the stress of COVID-related financial woes will just magically disappear. For millions of people, the pandemic has served as a source of financial distress and worry, prompting many investors to place a call to their financial advisor. Market volatility in recent months is the highest it’s been since Black Monday, which occurred over 30 years ago. In fact, we are experiencing the largest volatility spike linked to a disease outbreak in history.1
Living through COVID-19 is stressful, and feeling hopeless about an unpredictable stock market certainly isn’t helping. So, if you’re worrying about your investments, there are some effective ways to reduce stress and make a plan moving forward.
Prioritize Your Mental Health
Mental health professionals have long acknowledged the detrimental effects of stress. Chronic stress affects sleep, cognition, and overall physical health.2 When we're experiencing financial (as well as social) uncertainty, it’s important to make regulating your mental well-being a priority. High stress levels actually change human perception, increasing the likelihood of impulsive decision-making.3 That's why it’s wise to explore certain stress-managing lifestyle changes before making any important investment-related decisions.
Reducing Stress Without Changing Your Finances
Stress makes us feel as if we’re not in control of our lives. This is why taking control of your lifestyle wherever you can, independent of finances, is so important. The following strategies have been proven to have positive effects:4
- Focus on your wellness. Although they’re timeworn suggestions, they do work: exercise regularly, get enough sleep, eat well, and practice mindfulness. Schedule time for recreational activities that you enjoy and that make you happy. Or, explore a new hobby that you find interesting.
- Stay away from unhealthy coping mechanisms. These are often more difficult to recognize than you might expect. Don’t smoke or drink excessively to cope with stress, and be careful not to overwork yourself or take unnecessary risks.
- Maintain connections with people. Social support improves resilience to stress.5 Meanwhile, experiencing the combined effects of financial stress and social distancing due to coronavirus leads to feelings of isolation. Lean into your support system and be available for them to lean into you. And connect with others to avoid feeling consumed by anxious thoughts.
Approaching the Volatile Market
While all of these steps can help you handle stress, it’s impossible to really do so without addressing the cause of the stress: the anxiety you feel about your investments.
The first step is to accept what’s happening economically around the world. The optimistic 11-year bull run has taken a sharp downturn, so we’re now in a period of inconsistency.6 That's simply a fact, but it doesn’t mean investors have to live in a constant state of stock-induced anxiety. In your approach to the stock market, keep these guidelines in mind.
Take a Step Back
Checking your portfolio over and over is ill-advised in general, and even more so during a market downturn. For most, investing is a long-term proposition. Constant checking of your investments is not only unnecessary, but often causes aggravated stress - the same is true for over-consuming news reports about the stock market. This increases the likelihood that you'll make hasty, emotionally-driven decisions. Stepping back from your investments, even for a short time, may help you gain some needed perspective.
Assess Your Financial Goals
While you should avoid obsessing over it, seasons of volatility are a great time to talk to your financial planner and reassess your portfolio, focusing on your long-term goals. Why is your portfolio made up of these specific investments? Why are you investing in the first place?
Despite a dynamic stock market, most investors’ long-term goals probably haven't changed. Keeping yourself conscious of long-term returns is key. And remember that your investment plans will are highly likely to outlast a period of market volatility.
Making Investment Decisions
If you have an advisor, talk to him or her about your concerns. If you don’t and think it’s time to work with a financial planner, now is an opportune time. Regardless of your circumstances, the fundamental priority is to avoid making uninformed decisions. Having patience while seeing your losses isn’t easy. That said, while the average bear market losses total about 33 percent on average, bull markets last much longer and see average gains of 159 percent.7
Remember that, historically, the stock market has always recovered after downturns.8 Bear markets are a normal part of investing that are to be expected. Still, it’s hard to see an upside as anxiety spreads among investors. It’s understandably stressful when you feel the security of your investments is threatened. However, don’t allow a volatile market to cause you too much distress. Long-term returns will outweigh the short-term losses. Until then, focus on yourself, especially your mental well-being, and solidify your financial plans.