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Written by: Financial Freedom Studio | Jackson
While we stay socially distanced, social media has given us news updates on the pandemic, memes to keep us laughing, and ‘social’ interaction for many quarantined alone. While many of us are comforted knowing that our loved ones are a click away, social media also comes with a common side effect: Fear.
With more time at home, sitting in front of screens, it’s easy to read headline after headline on the impact of Covid-19. Filled with anxiety, many consumers respond by taking action in the form of panic spending. We’re all familiar with the stories of Costco shopping carts overflowing with a lifetime supply of toilet paper and hand sanitizer.
The panic-driven decisions don’t stop at emptying the aisles, though. When a recession starts, fear-driven consumers also want to load up on cash and offload their stocks.
Embrace Fear – Not Fear-Driven Decision Making
Fear – in response to Coronavirus – makes sense.
Responding to that fear with impulsive financials decisions? That often doesn’t make sense.
It’s natural, when we feel fear, to want to do something about it. An immediate consumer response – whether it’s stocking up on canned goods or selling off equities – can bring an immediate feeling of relief. That doesn’t mean it’s actually a good decision.
To avoid these kinds of responses, it can be helpful to understand the triggers to our fear, learn how to avoid them, or at least cope with them, and then discover alternative actions we can take to lessen these fears and also stay on track toward solid financial futures.
Fear is Contagious
Seeing other people’s actions drives our own. When we go to the grocery store for a couple items, but we look around and see other people loading up on months’ worth of basic essentials, we don’t want to be the one person who didn’t prepare adequately. So, we buy.
Social media allows this effect to be multiplied, all day long, on repeat. This sense of fear can then creep into other parts of your life, such as investing, and make you feel the need to take action to address this fear. Similar to the brief sense of relief people feel when they’ve taken action by overstocking at the grocery store, investors can feel a quick sense of relief by off-loading stocks.
Loss Aversion
We will work harder to hold onto twenty dollars than we will to make another twenty dollars1. When it comes to our investments, this loss aversion can drive poor decision-making that temporarily feels good but may not actually align with your long-term financial goals. Dumping stocks can make you feel like you’re avoiding loss in the moment – ‘At least I got out with what I do have!’ – but can cause you far greater losses in the long run.
Taking Back Control
Now that we understand how our fears get amplified to the point that we take action; we can better understand how to combat these responses – and even how to make technology our friend in doing so!
Step 1: Log Off and Acknowledge Your Fear
- Own it completely. Write it down. Acknowledge what you actually have a fear of, and what actions you find yourself wanting to take in response to that fear. Often, seeing our fears on paper and the actions we’re wanting to take can provide a good visual of how the two don’t actually align.
- Set a minimum time limit: Whether it’s a major financial decision, or a craving, or a tattoo design, this trick can work wonders for making sure you’re making a good call. By deciding ahead of time that you’re going to delay all financial decisions for a 72-hour (as an example) deliberation period, you’re buying yourself time to think things through and consider some potentially more sound alternatives. During that time, it can help to…
- Talk it out with someone you’re close to! FaceTime a friend or family member who can usually provide some judgement-free perspective. Sometimes, just stating your fears out loud to someone else can deflate them. Just make sure to pick a friend whose judgement you also trust.
Step 2: Call in the (Living, Breathing) Professionals
Even if you’ve been using a robo-advisor or other online financial planning platform, this is a time when interaction with a human expert, who can have a real conversation with you, is essential. Talking out your financial fears with an advisor can let out some of your anxieties, and you can work together on finding strategic solutions that bring you a sense of relief and support your financial future.
Your conversation with your financial advisor can provide guidance to help you make sound decisions around whether you should reassess your retirement timeline, rebalance your portfolio, or change your withdrawal strategy. It can also provide an opportunity to ask questions about how to make the most of a market downturn, what types of federal assistance you should be considering, and how those decisions may impact your taxes.
In addition to answering your recession-related questions, your advisor can also help you with…
Step 3: Getting That Financial House in Order!
If you’re looking for a way to calm your nerves during the pandemic, getting your financial house in order could bring a Marie Kondo-esque sense of calm to your life.
- Review your monthly expenses: If you’re trying to find ways to cut back during this recession, your bank statements can act as your guide. You may de-clutter your closet by going through your clothes and asking yourself what you haven’t worn in a year. Similarly, going through your spending statements can surface subscriptions you’ve forgotten about or little spending habits that no longer bring you joy but make a dent in your bank account over time.
- Make sure you’ve identified your beneficiaries. You can comfort yourself during a recession by being sure that you’ve organized the information that could be needed in an emergency, including the beneficiaries to your insurance policies.
- Refresh yourself on the financial products you do own. Do you understand how these align with your risk tolerance? Do you have online access to all of them? Do you understand the role each of these is playing in your financial plan? Your financial advisor can help you organize this information.
Technology to the Rescue! (With Caution. Lots of Caution.)
As you may know, Eric Yuan, Chief Executive at Zoom, admitted recently that they ‘really messed up’ when it came to security.2 This statement is mostly referring to the phenomenon known as ‘Zoom-bombing,’ which occurs when intruders hijack video calls, and often post offensive imagery or language. For some, this can just be a minor inconvenience, but if your financial planning meeting gets hijacked, there could be more serious consequences. While technology can provide opportunities to have the conversations suggested above, here are some top tips for keeping your meeting safe:
- Don’t attach financial documents to the meeting or send through the ‘chat’ function. You and your advisor should access your financial information using secure single sign-on sites.
- Don’t use your personal meeting ID to host the meeting. Instead, generate random meeting IDs. If you don’t know how, use this video tutorial (random ID generation starts at the 27 second mark).
- Use the ‘waiting room’ feature to control who can enter the conversation after the meeting has started. In addition, you can lock the meeting so that nobody new can join starting 5 minutes after the meeting has started, and you can require a meeting password for people to join the meeting.
All of these tips are especially helpful if your meeting is going to include more people than just yourself and your advisor. For example, if you’re pulling other family members into the conversation, this is a great way to ensure everyone’s information stays safe.
Even in the time of coronavirus quarantines, you don’t have to be alone in conquering your financial fears. Your community and your financial advisor can help you stay calm and stay the course. The next time fear strikes log off the social media and use these new tools to get back in control.
Related: Re-Estimating Retirement in an Age of Ambiguity
1. “Loss Aversion,” HireMinds, March 23, 2019
2. “Coronavirus: I really messed up on security, says Zoom chief Eric Yuan,” Business Standard, April 7, 2020.