Staying Calm When Everyone Else Is Panicking
March 12, 2020
By: Ken Waltzer MD, MPH, AIF®, CFA, CFP®
No question: it’s been a difficult few weeks for anyone invested in stocks (and even for many bond investors). The equity markets have dropped with alarming speed, and even a few dramatic rebounds have not prevented the major indices from shaving about 20% off their all-time highs in less than 3 weeks. The scale of the decline is about the same as the one at the end of 2018, but it has happened far more quickly.
We may or may not have seen the lows for this downturn, though recent market action gives me a bit of encouragement that we are now at, or very close to, the bottom. But as you know, the market will do what it wants and there is no way to either control or predict it. That’s one of the things that makes times like these both scary and frustrating.
As someone who has been investing in stocks for over 43 years, I’ve been thinking about how I personally deal with times like these. Watching a significant fraction of my portfolio appear to vaporize within hours is disconcerting, to say the least. When I was younger, rapid declines in the market bothered me much more than they do today even though my personal portfolio was a fraction of its current size. Over time, I’ve trained myself to deal with the resulting emotions, and you can, too.
What do I do to keep calm and sane when the markets are in panic mode? First, I stop and acknowledge my own emotions, which include fear, dread and anxiety. I tell myself that these feelings are a natural part of being human and that I should respect them, but not let them control me. Next, I deal with the irrational thoughts that often accompany these feelings, such as “I’m not as wealthy as I thought,” or “I won’t be able to retire when I want” or “I need to drastically cut my spending.” As with the emotions, I acknowledge that these thoughts are natural but also that they are irrational and not based on fact.
Once I’ve accepted that these thoughts and feelings are both real and normal, I then talk to myself about objective reality:
1. Even during times of large losses, my day to day life does not need to change.
2. My retirement will still be fine because I have a plan. If I were already retired, I would know that I’d be in good shape because my financial plan has already been stress tested for times like these.
3. I’ve been investing for a long time, and I know from personal experience that the market always comes back.
4. I also know from long experience that trying to time the market rarely works out well (and believe me, I’ve tried). It’s far better to stay invested according to your plan.
Note that these periods of volatility and panic, though short in the scheme of things, can feel interminable. The steps I’ve noted above must be repeated many times on many down days, typically until the market is fully recovered. As this process can take several months (or even longer in a true bear market), I end up doing a LOT of self-talk during times like these, and while it may sound trivial, it’s worked for me for many years. If you need more than self-talk, a conversation with your financial advisor can also help.
Remember, the world isn’t ending; it just seems that way right now. But this, too, will pass. If you follow the tips above, the wait is likely to be a lot less painful.
Ken Waltzer MD, MPH, AIF®, CFA, CFP®
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