Ongoing uncertainty about COVID-19 may have you feeling stressed-out and unsure of how to proceed with the decisions of daily life, both big and small.
Know that you are not alone – stress brings predictable changes to the areas in the brain responsible for logical decision-making for most of us. Research shows that when we feel stress, our nuanced and creative problem-solving abilities tend to get overshadowed by all-or-nothing thinking, impulsivity and an overreliance on mental shortcuts. In investing, these changes can steer us away from our long-term strategies, cause us to act in panic and not take in the full range of information we need.
Don’t despair, we can gain some insight by modeling our decision-making on those who are professionals at operating under stress. For example, one study out of the University of Iowa found that experienced firefighters tended to take longer to make decisions than their more novice colleagues, but with better outcomes. Surprisingly, it wasn’t that the veterans experienced any less stress, but that they had adapted to incorporate more situational awareness and deliberate analysis before acting. In our own lives, doing something as simple as writing a list of pros and cons about a financial decision can slow down our impulses. It is good to take a deep breath.
Surgeons receive years of training in order to remain calm and objective when operating in life-or-death situations. Despite these talents, the American Medical Association recognizes that there are limitations to human objectivity and maintains an official stance discouraging all physicians from treating members of their own families. Accordingly, seeking advice from an independent financial advisor or other professional not only draws upon their wealth of knowledge but also can bring a clear set of eyes to decisions where we find it impossible to distance ourselves emotionally.
Though the consequences of bad decisions are not as dire, elite athletes also have a lot of experience performing under pressure. Early in my previous career as a professional pool player, I focused on building skills that expanded my sphere of influence – trying to gain control over as many factors of competition as possible. It wasn’t until later that I understood that accepting and adapting to uncertainty was just as important. Every pool table rolls differently; spectators can be loud, opponents aggressive. Training came to include breathing and relaxation exercises and seeking out as many unfamiliar competitive situations as possible. The takeaway from this is two-fold: the majority of our actions should focus on those beneficial things that we can influence (such as contributing to savings), but we need to be realistic about the level of uncertainty that we’re prepared to live with. In the case of your portfolio, reconnecting with your financial advisor to review your allocation to stocks and bonds is one productive action for confirming that you’re taking on a comfortable and appropriate level of risk.
Ultimately, even given all their expertise, high-stress pros are still human and sometimes have irrational ways of coping with the unknown. Serena Williams, arguably the greatest woman ever to control a tennis ball, refuses to change or wash her lucky socks when she’s on a winning streak.