6 Ways Real Investors Cope With Serious Financial Anxiety
How to manage the "recession depression" and "stock market anxiety" of 2019.
Posted Jan 28, 2019
For the American economy, 2018 was a pretty rough year. According to the American Psychiatric Association, our national anxiety level increased five points in 2018 as the stock market swung wildly, especially after the relative calm of the previous year. This increase in money-related anxiety was consistent across all age groups, races and genders. Financial security became a much bigger concern, across the nation; at Barnes & Noble, books about anxiety flew off the shelves at a 26% faster rate in 2018. And the year’s market fluctuations were only a shadow of what had happened ten years earlier, when nearly three trillion dollars of value evaporated in the worst financial crisis in decades. Based on polls taken around that time, people who experienced huge financial losses were 35% more likely to take antidepressant medications. This shift toward SSRIs, as well as other anti-anxiety medications, also corresponded to increases in 2008’s unemployment rate, implying that people who lost their jobs were becoming clinically depressed. In regions especially badly affected by the foreclosure crisis of that year, psychiatric hospitalizations increased dramatically as well.
Mental health memes often arise after financial upheavals. In 2013, psychologists began conducting analyses on “recession depression;” in 2015, mental health experts coined the term “stock market anxiety syndrome.” The rise in general anxiety experienced by investors when the market dips can lead to insomnia, irritability or even eating disorders, such as anorexia. The link between market fluctuations and mental illness has plenty of objective scientific evidence behind it. For example, when the stock market drops for five consecutive days, hospitalizations for mental illness can increase by more than 1.5% — an effect that appears to be even more serious for men, as if the stock market exerts an especially strong influence on the emotional health of middle-aged males. Even a one percent fall in a stock index, in a single day, coincides with a noticeable increase in the number of people hospitalized for mental illness — an effect found consistently from China to California. A much bigger index drop, such as a 1000-point decrement in the Taiwan Stock Exchange Capitalization Weighted Stock Index, can result in an increase in hospitalizations of more than four and a half percent. Some investors feel anxious and have trouble sleeping when the stocks rebound, too — not just when they lose value. And these effects take time to wear off: even two years after a significant financial loss, rates of clinical depression can remain elevated.
Casual investors — those whose careers aren’t tied to finance — can also be affected. People with high financial anxiety may become obsessive about checking their bank balance, or the fluctuating principals of their outstanding loans. Work performance can suffer, especially for young people: over 25% of self-described millennials say financial stress affects their job performance, which is twice the rate of the general population. People in their late twenties and early thirties often report that financial anxiety has been responsible for their physical illnesses or depressed moods. And millennials aren’t even the youngest people affected by a market crash. When stocks slide, children get sick: they are hospitalized more often, stay home sick more often, and report more problems with their health.
Feeling out of control, financially, can cause any investor — large-scale or small — significant anxiety. “Recession depression” is a real effect. 69% of young, employed Americans worry frequently about income instability, and 67% of them fret about having saved too little. More than half of millennials today are worried about losing their jobs. Over forty percent are worried about another economic crash or major recession, which could leave them without enough time to rebuild their retirement savings. In part, this investment-related anxiety is attributable to a recency bias — a cognitive heuristic in which we overestimate the significance of the most recent period in time. We also experience a loss aversion effect, in that the anxiety, depression and other bad feelings accruing to financial losses usually outweigh the positive emotions we feel when stocks do well. Money, in short, is always a significant stressor, and high levels of stress often correlate with increases in depression or other mental illnesses. Fluctuations in financial stability can have both short-term and long-lasting effects on mental health.
How, then, can the average person (even without financial advisors or thousands of dollars in investments) shore himself or herself up against the emotionally destabilizing chaos of the market? One way to reduce these negative effects is by using a different cognitive “anchor” for your perceptions of the market. Think of your financial goals in smaller, more incremental steps. If you set massive long-term goals for financial success, sudden or unanticipated dips in value can look like unrecoverable losses, and can leave you feeling hopeless. Try to view the market more broadly, and develop sound, long-term strategies based on these perceptions and goals. Instead of focusing solely on the bottom line, set progress-related goals instead — for instance, go from one percent returns to four percent, rather than from zero to ten percent. Don’t envision a huge windfall. To do this, educate yourself thoroughly about your own financial picture: more information is good information. Find trustworthy sources of financial news and use them judiciously to make decisions stemming from reason, logic, and objective facts. Take a break from making changes to your investments if you’re feeling worried or panicky. Gain a full understanding of your financial circumstances so that you can view them in a realistic way — in relation to yourself and your own, realistic goals, not to the apparent successes of others. And for that matter, try staying off social media. It’s altogether too easy to compare oneself to others — especially when others are showing off how well-off and happy they are (or perhaps just making it seem that way).
Make no mistake — whether you’re well-off or struggling to make ends meet, money nearly always poses a real stressor. It’s not possible to predict what the market will do tomorrow, so it's important take care of yourself, cognitively and emotionally, today.
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