When the stock market falls, how do you feel: anxious, nervous, worried?
There’s a variety of research showing that nervousness brought on by market declines affects investors in a physical way. This study looked at daily hospital admission data from 1983 to 2011 in California, and found a negative relationship between stock performance and hospital admission. This was particularly true for anxiety, panic disorder, or major depression.
The authors of the study also suggest that significant market corrections alter individuals’ expectations about the future, which drives their utility today, which further produces an instantaneous physical reaction. A poorly performing stock market may actually make you sick.
What do you do? First, make certain to have a cash reserve in place that enables you to cushion market drops and continue living without the need to draw upon your assets during a market drop. Second, establishing a comprehensive financial plan may ease your worries. If you have a plan in place you will know that you can succeed despite periodic market drops. Lastly, turn over the investment duties to a trusted professional, such as a CFA charterholder.
At Sherpa, we monitor the investment markets for the best combinations of possible return versus risk. While others panic in market declines, we believe that they may present us with additional opportunities.
—Lance Gunkel, CFP®, CFA