Balancing Stress and Strategy
Managing stress and anxiety in relation to finances and investing is a crucial aspect of maintaining a healthy approach to money matters. It is fascinating how stress and anxiety can both be beneficial and detrimental to financial decision-making.
Good stress or anxiety can indeed function as a signal to prompt us to make wise financial decisions, much like the instinctual response to encountering a bear on a hiking trail. It's that feeling that helps us protect ourselves and make the right choices for our financial future. For example, if you feel like you have not saved enough for retirement and you become anxious about that, that anxiety may prompt you to increase your 401k savings.
However, financial anxiety can also lead to biases or irrational thoughts that affect our decision-making. Recognizing these biases is vital. These biases might push us towards making quick decisions that aren't rational or conducive to our financial well-being. In future articles, we will break down specific biases so you know how to recognize them and then properly interact with them.
Practical Steps to Assist You
For now, we will look at a few practical steps that can assist you in slowing down to make wise and rational financial decisions when you are under stress or anxious about your money. Many of these insights come from the book “Investor Behavior” by Kent Baker and Victor Ricciardi if you would like to explore more about these topics on your own.
- Get a coach: Having a financial advisor or coach can serve as a valuable resource. They provide a unique perspective and function as a sounding board, helping to navigate emotionally charged financial decisions. Moreover, during stressful times, they can help reduce the cognitive load of making financial choices. You can be prone to submitting to irrational thoughts when you are fatigued. Let the coach take some of that demand from you.
- Monitor Information Intake: Constantly checking investment accounts or consuming news can exacerbate anxiety. Limiting exposure to market fluctuations and sensationalized news reports helps reduce the tendency to make impulsive decisions based on short-term events.
- Perspective: Putting things in perspective is crucial. Viewing financial losses or market downturns within a broader context can mitigate loss aversion and help focus on long-term goals rather than short-term fluctuations. There is more to life than losing money in the stock market, and what you are stressing over will likely not have a permanent effect on your life. Dwell on the true riches of this life.
- Journaling and Meditation: These practices aid in reflecting on past decisions and emotions, reducing hindsight bias and counterfactual thinking (thinking about what might have been). They also assist in recognizing rational thinking during stressful times. Being able to reflect on other times you were dealing with money anxiety and how you managed that, good or bad, can help you avoid making the same mistake or confirm what you are doing is the correct course of action.
- Rule-Driven Process: Establishing rules or guidelines for decision-making, such as consulting a specific person before acting or imposing a cooling-off period before making significant financial moves, can help prevent impulsive reactions.
- Embrace Uncertainty: Accepting the unpredictability of the markets and being adaptable is key. There is so much we cannot control when it comes to the stock markets, our jobs, and other aspects of our finances. Accept this and the fact you WILL face financial anxiety in the future. Embracing this idea will assist in keeping your emotions in check when that day comes. DECIDE to be bold and not let the anxiety and stress of your finances wreak havoc in your life.
Some of these points may or may not work for you as everyone is different. Take two or three that resonate with you and dwell on those now, even if you are not in a time of financial anxiety. This will help you when those times come because they certainly will.
Remember, even seasoned investors experience stress and make emotional decisions. The goal is to be mindful of these emotions and biases, especially when markets are volatile, to mitigate the impact of your stress or anxiety and to avoid impulsive actions that may harm financial stability.
Provista Wealth Advisors in Greenville, SC, provides peace of mind through personalized asset management, expert estate planning, and retirement planning. Navigate your financial journey with confidence. Rest Assured, We Have A Plan. Give us a call at (864) 696-2410 or send us a message to schedule your free introduction meeting.