Is the Current Financial Climate Stressing You Out?

Mar 23, 2022

It’s pretty evident to anyone interested in their investments and their performance that the global markets are going through some pretty radical ups and downs these days. The resulting situation has certainly been, and continues to be, a roller coaster ride for many of us. To state the obvious, these are indeed challenging times.

How to Avoid Financial Neurosis

In an interesting article written by Barry Ritholz, Bloomberg Columnist and Chairman and CIO of Ritholtz Wealth Management, Mr. Ritholz quotes a colleague of his, Nick Maggiulli who explains that investors tend to ‘replay traumatic market moments in our head over and over again and they can come to define how we invest in the future.’

This can give rise to a helplessness cycle leading to dangerous and occasionally fatal emotional responses. What we’d like to point out in this blog is how we can all potentially avoid negative thoughts and not ruminate when volatile action in the financial markets cause us anxiety. Learning to recognise what’s in our control is a good first step.

Behavioural Finance

At Everything Retirement, we’re interested in people’s behaviour when it comes to their investing and general financial habits. We continue to research this topic in order to help us (and you) better understand and anticipate any possible ‘financial neurosis’ that some investors may experience when world events, market volatility and investment performance appear to be going out of control. What can or can’t we control?

To illustrate, let’s consider the following few examples, distilled from a checklist helpfully provided by Mr. Ritholz, with our own observations added. It’s divided into two categories: what we cannot and what we can control.

What We Cannot Control

Market moves Will the next Star Wars movie be good?
Geopolitics Gross domestic product
Corporate profits War in Ukraine
Government interest-rate decisions Middle East peace
Volatility Home or retail sales
Inflation Who wins the Stanley Cup
Bear & Bull Markets Tweets from politicians or other influential figures

What We Can control

Developing an investment philosophy Leverage
Asset allocation The contents of your portfolio
Turnover of financial holdings Having a long-term plan & sticking to it
Fees, commissions, capital gains taxes Books you read
Quantity & quality of media consumed How much risk you’re willing to assume
Understanding markets do go up & down Your own behaviour
Your expectations, motivations & goals Your emotional reaction to events

Conclusion

That last item, your emotional reaction to events, is hugely important.

To illustrate with an example where emotional reactions need to be under control, just think about how the U.S. or Canadian military operate when they enter a high stress or potentially harmful situation. They’re trained to consider what might go wrong and to be prepared for any eventuality. As a result, when a negative event occurs, they’re not surprised by it and react with cool detachment.

We can behave in a similar way when it comes to events which affect our personal life too by making it our habit to be prepared for any eventuality and react in a calm and thoughtful manner.

Learning what you cannot control, and focusing on what you can control, is good advice – not only when it comes to investing but also in life.

Recent Posts

Aviso Weekly Market Pulse: May 20th – May 24th

Market developments Equities: U.S. stocks climbed after data showed consumers tempered their inflation expectations in late May. The S&P 500 had its fifth straight week of gains, the longest bullish streak since February. It topped 5,300 and the Nasdaq 100 rose...

NEI Monthly Market Insights: April 2024

Robust earnings helped mitigate fear of persistent inflation Market sentiment turned bearish in early April for both equity and fixed income markets as sticky U.S. inflation data fuelled market fears that central banks will not ease monetary policy as quickly as...

Aviso Weekly Market Pulse: May 13th – May 17th

Market developments Equities: The stock market has been rallying recently, with the S&P 500 on track for its fourth straight weekly gain. This has been fueled by hopes of Federal Reserve rate cuts following some positive inflation reports, as well as strong...

Aviso Weekly Market Pulse: May 6th – May 10th

Market developments Equities: The S&P 500 closed near 5,225, for its third straight weekly gain, while the Dow rose for an eighth consecutive session. The stock market lost momentum after economic data pointed to a slowing economy amid persistent inflationary...

Aviso Weekly Market Pulse: April 29th – May 3rd

Market developments Equities: The economic data to close out the week was seen as a "Goldilocks" scenario by markets, indicating the economy is cooling enough for the Federal Reserve to likely start cutting interest rates as soon as September. The S&P 500 rose by...

NEI Monthly Market Insights: March 2024

Unstoppable equity market rally on soft landing narrative Resilient economic data throughout the first quarter supported the soft landing narrative and pushed equity markets around the world to new record highs. Global equities posted strong returns with the MSCI ACWI...