Retirement savers are anxious, and who can blame them? The long bull market that propelled 401(k) balances for more than a decade has ended amid soaring inflation, the prospect of a recession, political strife, and the war in Ukraine.
Stocks have lost about 19% for the year, bonds are down 11%, and target-date funds, which hold a combination of both, are down somewhere in between. “We’re in a bear market, and lots of people are freaking out,” said Stanley Teitelbaum, a psychologist and author of Smart Money: A Psychologist’s Guide to Overcoming Self-Defeating Patterns in Stock Market Investing.
The key, experts say, is to manage any financial anxiety you might be feeling—and not to let it manage you. Here are some tips.
Go Easy on Yourself
If you’re feeling anxious, cut yourself some slack. Everyone’s been through a lot over the past 21/2 years. “It’s not just the markets in isolation,” said Sian Beilock, a cognitive scientist and president of Barnard College. “It’s the changing political order. It’s dealing with Covid.”
These stressors have a multiplier effect, said Michael Cunningham, a professor and psychologist in the department of communication at the University of Louisville. With an additive effect, you’d add negative-10 and negative-10 and get negative-20, but with a multiplier effect two negative 10s feel like a negative 100.
So it’s no wonder that some investors are reacting to the current bear market like it’s a rare, catastrophic downturn—a “black-swan event,” in finance-speak—instead of a garden-variety bear market. “Between fears of recession, inflation, rate hikes and war, the reaction to this white-swan event has been a mean black-swan reaction,” said Jonathan Blau, CEO of Fusion Family Wealth in Woodbury, N.Y.
Try to practice self-compassion, Beilock said. “It’s important, especially in the uncertain times we are in now, to…understand that these feelings are completely normal,” she added. “Giving ourselves a hard time has been shown to actually disrupt our ability to focus, which is a critical component in decision making.”
Get Some Perspective
It helps to remember that markets are cyclical, and they’re supposed to go up and down. They tend to go up over the long haul—since 1926, the S&P 500 has posted average returns of around 10%—but short-term downturns are common and not a sign that the system has gone off the rails.
There have been 14 bear markets since World War II, including the current one. It takes 14 months on average for stocks to get back to break-even after a garden-variety bear market, said Sam Stovall, chief investment strategist for CFRA Research, and with the deepest of bears, it takes about five years to get back to break-even. Most retirees have a longer investing horizon than that. In fact, research suggests that the risk of outliving your assets is a bigger threat to retirement security than market volatility.
That said, research has quantified that losses feel 2.5 times as worse as wins feel enjoyable, Teitelbaum said. While it’s miserable to see your investment balance in the red, just remember that you haven’t actually lost money unless you’ve sold out of your positions. If you wait until the markets rebound, you’ll eventually be made whole. “A paper loss is just that,” Stovall said. “It’s only a real loss when you take it.”
Consider Getting Help
If you’re worried about your portfolio, a financial planner can help make sure your assets are diversified and positioned to weather the storm. If you don’t have a financial plan, now’s a good time to make one, either on your own or with a professional. Identifying your goals—and how your investment strategy will help you meet them—can help you pull through a market downturn and recession.
While extreme moves are a bad idea, like pulling your money out of stocks, small tweaks might actually help you stay the course, said Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wis., and president of the Financial Therapy Association. For example, you might feel better dialing back your 401(k) contribution rate by a couple percentage points. “If you need to raise a little liquidity, there’s nothing wrong with that,” Cherry said.
The Financial Therapy Association administers the Certified Financial Therapist, or CFT-I, designation, a certification that marries financial and psychological concepts to investigate how people think, feel and behave about money.
If you’re feeling anxiety about your finances, what’s the best kind of professional to engage?
That depends on what keeps you up at night, Cunningham said. If you wake up one night worried about the markets, but the next night it’s monkeypox, and the next it’s the war in Ukraine (and you have no personal connections there), then you might suffer from more generalized anxiety, and a psychologist or other mental health practitioner can help, Cunningham said. But if your portfolio consistently keeps you twisting and turning, then your first stop could be a financial advisor.
And don’t discount tried-and-true strategies for managing anxiety. “Just because it’s easy and you’ve heard it before, doesn’t mean it’s not good advice,” Cunningham said. “You really do calm down with deep breathing.”
Write to Elizabeth O’Brien at [email protected]