How to cope with a bad news day
Remember last Monday, August 5th? That was the most recent day the market “crashed.” The S&P 500 dropped 3% in what was a wide sell off of assets globally. Here is a fun fact you may not know. In 94% of the years since 1928, the market has had a drawdown of at least 5%. It turns out, last Monday was a very normal day in a functioning capital market. But you would not think so if you turned on the news.
What do I do on days like that? I turn off the news and the socials. If events like this get you fired up thinking you need to do something outside of your normal plan, you should do the same. Here is the thing about the news. On a good day, it tends to make you feel less happy than you were when you started watching. On a bad day, oh boy, the sky is crashing down and you need to start taking actions for the impending worst-case scenarios.
Information is readily available to us, all the time, in many different forms. While this seems like a good thing, I am not quite sure it is. Do we really need to know what happened in an overseas incident minutes after it happened? No, we don’t. While it is good to stay informed, it is tough to live through every news event as it happens, day in and day out, no matter where in the world it occurs.
When I started in the financial services business back in 2009, the economy was really struggling to get back on track after the 2008 recession. I would go to industry meetings all the time to get a feel for the business I just joined. One presentation that struck me was a mutual fund wholesaler whose wife pleaded with him to “do something” after their 529 balance kept going down each quarter. In my mind, once you have reached the “do something” stage of an investment issue, it is already too late.
This is precisely why I find it helpful to keep funds that we are going to need in the next two to three years out of the market. Our 529 plan is now half in cash, half invested in the market. Why? Well, we are now in the process of using it. I do not want to risk losing money on the funds I know I need in the next two years.
Doing nothing when our brain is triggered into fight or flight mode is not simple. When do we make our best decisions about a long-term issue? When we are calm and collected. When do we make our worst decisions about a long-term issue? Yes, you guessed it, when you are stressed or scared. Part of my job is to help those who are triggered to not make a bad decision that will cost them over time.
The next time something like this happens, do as I do. Turn off the news, get away from the phone/computer, and go for a walk/bike ride/drive, etc. This does not just apply to financial news. Politics, international conflicts, natural disasters, it is all the same. Get outside, call your family, work on your favorite hobby. It will be better for your mental health and quite possibly, better for your portfolio.
