The Power to Revoke Fear

“If you are not ready today, you will be even less so tomorrow.”-Ovid

Do you ever lie awake at night worrying about the strangest things? Sometimes when that light goes off, I start thinking, “Did I turn on the alarm? Am I prepared for a meeting with XYZ? Did I write down that idea I had for a blog post? Did I review my credit card bill before I auto-paid?” Sometimes this can elevate my heart rate and makes it more difficult to relax (and ultimately sleep)! Fear*  sets in.

Fear is the expectation or anticipation of possible harm. Our ability to experience fear is essential for our survival. In the old days, possible harm meant a hungry lion looking to eat us for dinner. Today, possible harm means something entirely different. Here are some financial fears you may have felt or will feel:

As humans, we learn to fear. We absorb triggers or signals that warn us of a possible threat. Signals are relayed from our senses to our brain, which in turn releases neurotransmitters that set off a cascade of biological responses like freezing or jumping. A part of our brain called the hypothalamus controls the autonomic nervous system, which we know as “fight or flight”. Fight or flight releases glucose into the blood stream as well as cortisol and adrenaline. These chemicals help prepare us for potential danger.

Scientists also consider emotions to be a hard-wired, biological function. While the threat of outliving our money may not cause us to jump out of our chair or throw punches, it will still cause the same release of compounds within the body. At an intellectual level, we know this to be true. That does not stop our bodies from fulfilling their biology.

The good news is – your adrenal response is usually short lived, especially if you’re thinking about whether or not you left the oven on. Within a short period, your extreme worry melts away.

There is a lot to be learned from our mental and physical biology. The small release of neurotransmitters can be the difference between you asking for a raise and you continuing to receive your current pay. It can cause you to purchase bonds or stay in cash rather than accepting additional risk in equities for higher potential return. Tiny little chemicals may cause a fear of missing out that derails your financial plan. Oddly enough, many of the behaviors we default to out of fear actually leave us worse off. Unless you are in a dangerous situation that calls for the release of cortisol, adrenaline and glucose to run away or wage war, your fears are generally unfounded. You can attack them with your mind. Your actions defeat fear.

Let’s go through a couple of examples:

Asking for a Raise Suppose you know you are an undervalued employee. You work hard. You’ve managed projects. You’ve even developed processes that take less time and produce more accurate results. You want to ask for a raise. Yet, just thinking about the word “ask” instantly raises your heart rate. You choke up, grappling with self-doubt. There are a number of reasons why this makes you anxious. For starters, it’s a negotiation which your manager likely has more experience with. You probably also have a relationship with your boss. Maybe this person is someone you look up to and you fear your relationship may change after the conversation. You also like working at the company and don’t want to work somewhere else. You fear that if your boss tells you “no”, you will be obligated to look elsewhere to be fairly compensated. A “no” also reaffirms the self-doubt you are currently feeling, reinforcing the cycle of fear.

The best way to deal with this kind of anxiety is to first accept it. You’re afraid and that is ok! Your fear doesn’t have to mean waving a white flag. You want to be able to demonstrate how you add value and how you’ve made a difference to the company. Thus, you come up with a plan.

Secure your bargaining position by interviewing elsewhere and lining up an offer you would otherwise be delighted to accept. This dramatically reduces the anxiety induced by an unknown negative outcome. Then, you think about why your boss should even consider your request. You gather evidence of your successes as well as information about company and industry-wide salaries. You start by rehearsing what you will say out-loud to the mirror. Then you ask a friend or your spouse to role-play with you and pretend to be your boss. Have them ask you tough questions about why you deserve this to make sure you have confident answers. Then, you choose your moment wisely. Don’t approach your boss when he’s overwhelmed. Instead, ask for a raise just before you take on new responsibilities or after you’ve completed a project. Don’t complain or mention or your offer, it’s only there so that you have the confidence to walk away from the negotiation. Instead, show that you’re a dedicated team player committed to the growth of the company.

Dealing with Downturns in the Market Suppose you used to hold equities in your portfolio until you experienced the global financial crisis in 2008 and saw your net worth cut in half. This terrified you! You have a mortgage to pay, a family to feed and you were relying on the funds in the portfolio for a secure retirement. You dealt with sleepless nights, cold-sweats and nausea. You felt like you were going insane. You decided to sell everything and buy some bonds, keeping the rest in cash. You threaten to never invest in the markets again!

Again, the best way to deal with this kind of fear is to first accept it. You’re afraid and that is ok! Your fear shouldn’t keep you from investing wisely for the long term. Market volatility is inevitable, even in bonds. Additionally, keeping all your savings in cash is actually costing you due to inflation. Every year you stay in cash, your purchasing power declines. Intellectually, you know this and therefore you develop a plan!

There are a number of strategies for dealing with a volatile market. You start by accepting that downturns in the market, even steep ones, are a natural part of our economic cycle. If you accept this, then you can make a pact with yourself not to trade in and out of the market every time you hear something bad or good in the news. Market timing is very difficult and generally causes lower long run returns than the expected higher ones. Invest regularly in both good and bad markets. You set regular contribution to a 401(k) or another type of retirement plan. You can also directly deposit to your brokerage account and automatically invest. You devise an asset allocation that is suitable to your objectives and risk tolerance. You agree to stick to this allocation and maintain a diversified portfolio that invests in stocks, bonds, cash and perhaps real estate. While diversification doesn’t guarantee a profit, it will smooth outcomes over time making the volatility more palatable. You seek out professional advice to get an objective perspective on your situation. And lastly, you check your accounts and statements as infrequently as possible!

I hope you are able to relate to at least one of these examples on how to accept and deal with financial fear. Your actions defeat fear. Don’t let another day slip by!

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*Throughout this piece I use the terms fear and anxiety interchangeably. While these two feelings often co-occur, there are key distinctions between how we experience them. Both produce similar biological responses, but anxiety is a response to an unknown threat while fear is a response to a known one.

Disclosures:

This bulletin expresses the views of the author as the date indicated and such views are subject to change without notice. It is important to understand investing in general involves risk of loss that you should be prepared to bear. Please refer to our Firm’s Form ADV Part 2 Disclosure Brochure for more information regarding the risks of the investments held in your account. Our calculated perceived value is an opinion based on the information we have at the time of our forecast.  The risk assumed is that the market will fail to reach expectations of perceived value. Our opinions, forecasts or predictions of future events, returns or results are subject to change and are not guarantees of future events, returns or results. This communication is intended to be distributed to current clients and certain interested parties only. This communication should not be construed as an advertisement offering our firm's investment advisory services.