Do you find the stock market gut-wrenching?

Here is one thing to do about it . . .

Day 2 of 12:  Do two turtle doves signify twice the peace of just one?  As financial planners, we believe that peace of mind is a byproduct of financial planning. But Peace of Mind is hard to find in a world of 24-7, always-on, news cycle.

Today I offer a serious thought experiment for anyone who owns stocks and closely watches their portfolio or regularly listens to the news about the market.

On Christmas Eve 2018, the U.S. stock market was only open until 1:00 PM; but that was enough to drive the indices into “bear” territory (defined as being down by 20% from a recent high).  Despite the fact that it was Christmas Eve, reporters were all over it on the evening news broadcasting every plausible explanation that they could come up with. If you watched the news that night, try now to recapture your feelings and the thoughts that were behind them.  Did you succumb to shoulda, woulda, coulda thinking?  Were you asking yourself, “If only I had sold sooner, bought something different, or  . . . you fill in the blank.”  For those of you watching the market on Monday or listening to the news, I dare say that most of your thoughts were anything but filled with Peace. If you are like most people, your thoughts were likely fear-inducing. But the truly important question is what action or reaction did those feelings cause? Hopefully, none.

After being closed on Christmas Day, the day-after Christmas produced the single largest daily gain ever seen in the DOW 30. It was up 4.98% (1,086 points) in a single day of trading.  Now what were your thoughts? and feelings?  Do you feel a little lighter than you did on Monday?  A little more at peace? After hearing that the market rose nearly 5%, did you succumb to FOMO (Fear of Missing Out) because you believe you should have taken some action at the market open to shore up your stock holdings? If FOMO is an issue for you, check out this post from last year.

Acting upon our feelings all too often leads to regret. Realizing that  is perhaps the first step toward improved portfolio performance. Those feelings are driven by thoughts and beliefs about the market. It is our thoughts and beliefs that we can control and even change. It is important to acknowledge our feelings, but it is more important to think clearly.  As fiduciary investment professionals, that is our business.

I believe that this kind of self-evaluation is more important than watching the financial news.  At least self-improvement is one thing you can personally do something about. It could be your pathway to Peace of Mind.

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No Partridges in Pear Trees Here

“Motivation is what gets you started. Habit is what keeps you going.” Jim Ryun

Day 1 of 12: On the first day of Christmas, my true love gave to me a partridge in a pear tree.  You surely know the song, “The Twelve Days of Christmas.”  Thankfully, my true love did not give me a partridge or a pear tree. She gave me a new Fitbit that tracks my heart rate and keeps track of my exercise and sleep.  I hope that means that she wants to keep me around and wants me to stay healthy.

Nearly two years ago, I attended a 2017 goal-setting course and made an important discovery–that my chief motivation for getting and staying healthy was that I would then have a better shot at seeing our son, David, graduate from college. (He was in the 8th grade at the time.)

“Duh!” you say. “Doesn’t everybody have the goal of seeing their children, or even grandchildren, graduate and grow into adults?” Well yes, but there is a big distinction to be made between aspirations and goals. Seeing David graduate is a wonderful aspiration and serves as a useful motivation, but is not a well-defined goal.  As financial planners we are compelled by our professional standards to ferret out client goals, but too often clients settle for expressing only aspirations.  Even “getting healthy and staying healthy” is too vague to be a well-defined goal. I re-crafted my goal: “Exercise for 30 minutes a day, 5 times a week, starting on January 10, 2017.” This is a habit goal.

Habit goals, such as “save 10% of income” unlike achievement goals, have a beginning date rather than a target for getting them done. Determining the best way to move toward the goal led me to one of my best investments yet: a treadmill to put in my basement. My goal of 30 minutes, 5 times a week was “installed” on March 30, 2017.

Fast forward to the fall of 2017 and my annual physical.  My internist told me that I might be the healthiest he has seen me in 30+ years.  I have kept up the exercise and this year added a new habit goal to my treadmill routine: Exercise 3 times a week with weights for strength and yoga for balance. That one took a bit longer to “install” but I’m happy to report that I have the habit.

With the new Fitbit, my goals are even more measurable than they were before. I am so grateful that Jennifer is encouraging habits that are good for me.  Next up, “Schedule and have a date night with her each week, starting December 28, 2018, and continuing until “installed.”

If you need help simply setting goals, click here for a step-by-step guide. 

Creating a crisis is never anyone’s goal

But getting through one should be in your plan

What exactly constitutes a personal financial crisis? Chief among those crises we have heard is experiencing an unexpected event that consumes all readily available cash and having no one to turn to for help. If you have never been in that situation, you likely have little appreciation for the level of anxiety, or outright panic, that it can create.

Backing off from such an extreme example, what would it take to label something in your life a crisis? The dictionary defines crisis as “a time of intense difficulty, trouble, or danger.” Indeed, there are many situations that can cause intense stress, fear, and anxiety. While the consequences may or may not be dire, they can seem so amidst the emotional turbulence experienced during times of personal crisis. Fears around an uncertain future, played out in our minds today, can create an imagined crisis even before the event occurs. Decisions unrelated to money can give rise to a crisis mindset and often the reaction to that imagined crisis can lead to bad outcome.

Dealing with The Effects of Crisis

Often when faced with the emotional stress of a difficult situation, a natural response is to procrastinate. It is a human tendency to avoid the problem by pursuing activities that have nothing to do with it.  Lack of clarity as to why the circumstances are the way they are can also intensify the stress and induce a sense of hopelessness over the situation. Remember that negative emotions can act as a warning and a call to action.

We cannot be in control of everything that happens to us. Some circumstances must be accepted as outside our sphere of influence. We can, however, decide what we will do in the moment of difficulty or challenge. A significant roadblock to an accurate assessment of our situation, and finding a solution to it, is our perception of what is happening and why. Whether a set of circumstances is our fault, moving to blame or shame can perpetuate negative emotions and intensify hopelessness and despair over the situation.

Five ways to manage the stress of a crisis

  1. Reframe the situation in your own mind. Rather than blaming yourself for your ignorance or poor decision-making, remember that you’re not the only one in your situation. Many people experience the same or similar circumstances you face.
  2. Think more positively about a future. Envision yourself beyond the crisis. It may take some hard work to get through it, but there are plenty of examples of life beyond difficult periods.
  3. Engage in stress-reducing activities. Prolonged periods of negative stress are harmful to the body. Getting enough sleep, taking part in simple forms of exercise, and even play will help you maintain your health and mental focus. Take 15-20 minutes of “me-time” every day. That means you and you alone, no devices, and no guilt.
  4. Be smart enough and courageous enough to ask for help. While experiences of crisis can embarrass us, an outside perspective by someone with a non-anxious presence can be invaluable. Make the most of the situation to learn and grow.
  5. Get emotional support from friends and family. Sometimes we need to be reminded that we’re known and loved through—and apart from—our troubles.

Can Planning Avert Crisis?

Just as practicing risk management doesn’t prevent future risks from entering your life, having a plan will not help you avert every potential crisis. Yet proper planning can help mitigate the effects of a crisis when it comes. You know the adage: “hope for the best, but plan for the worst.”  The value of a plan is not in it being failsafe, but rather in having it in place to begin with. Not only can a sound financial plan lessen the severity of a personal financial crisis, but it is also a place to deal with its effects. The government uses stress tests with banks to plan future capital requirements. Your financial plan should be stress-tested before the need arises.

A plan means the difference between being worried, concerned, or stressed to the point of ambivalence or paralysis—and being confident in one’s ability to handle the situation. Having a plan in place can turn a significant financial crisis into a temporary setback.