A recent survey from Bankrate reported that over half of Americans feel financial stress is taking a toll on their mental health. Considering the ongoing debt-ceiling negotiations, regional bank failures, continued market volatility, rising mortgage rates and stubborn inflation, there’s certainly no shortage of financial factors that can trigger stress these days. In recognition of May as Mental Health Awareness Month, we spoke with two of our financial advisors about this subject and its impact on emotional investing. Matt Waters and Kerry Keihn both share a passion for helping clients build successful financial futures and manage stress along the way.
Q&A with Matt:
Q: How does financial stress impact someone’s mental health?
A: Financial stress can lead to various issues such as an inability to pay bills, constant worry about money, and concerns about unexpected expenses like medical emergencies. These stresses might result in sleep disturbances, poor eating habits and strained relationships within the household. For families, financial stress can affect parenting and lead to increased tension and short tempers. We’ve even found that financial stress can also have an immense impact on people at work.
Q: What are some potential consequences of emotional investing decisions?
A: When individuals make emotional decisions based on fear or uncertainty, they may choose to exit the market during downturns, hoping to protect their investments. However, this often leads to missing out on the subsequent market recovery and potential gains. Emotional investors may also experience a sense of regret or guilt about their decisions, which can negatively impact mental well-being. Additionally, repeated emotional investing decisions can disrupt long-term investment plans and hinder the achievement of financial goals.
Q: What strategies can people implement to manage financial stress and avoid emotional investing behaviors?
A: I think it comes down to education and having a well-thought-out plan. By educating themselves about investing and understanding the reasoning behind their investment strategies, individuals can make more informed decisions and feel more confident about them.
When people don’t understand something, or find it overwhelming or intimidating, they tend to do nothing — like an ostrich with its head in the sand. It takes bravery and courage to take action, which might include picking up the phone to call a financial advisor. The people who are willing to be vulnerable and say that they need help will likely avoid making emotional decisions.
Q&A with Kerry:
Q: How can financial stress impact investors at different stages of their investment journey?
A: Examples of how financial stress might affect investors at different life stages include:
- When first investing, individuals are typically launching careers, starting a family or buying a house. So things can change quickly as they try to budget, creating uncertainty and a sense of feeling overwhelmed. Many struggle with questions like “What type of account should I open?” or “How much should I save?”
- Midway to retirement, the stress of managing various financial responsibilities can cause investors to neglect their investments. They may want to save for retirement but are also changing careers, saving for children’s college tuition, or perhaps caring for an aging or ill parent. Under the circumstances, it can be easy to get distracted.
- Close to retirement, sensitivity to market fluctuations and fear about not having enough money can increase stress levels. During this time, it’s a good idea to start dialing back the risk level of investments, rather than going from extremely aggressive to completely conservative in the blink of an eye.
- In retirement, the shift from saving to spending can be stressful, as individuals adjust to drawing from their accounts instead of adding to them. Give yourself some freedom to explore new things in retirement and revisit your expenses every six to 12 months to be sure you’re on target with your financial plan.
Throughout all these phases, it’s important to remember the critical role that a financial professional can play. From advising on appropriate accounts to implementing an investment strategy, adjusting it as needed and serving as a trusted confidant along your life journey, the right advisor can help keep financial stress from adversely impacting your mental health.
Q: Are there any other drivers of financial stress that might be overlooked?
A: Yes, another significant driver of financial stress is the concern that your investments do not align with your values. Feeling uneasy about how your money is invested can lead to avoidance behavior, exacerbating the stress. Many people believe that they have to compromise their values in order to grow their funds through investments, but this is not true. It is possible to “do well and do good” at the same time.
Q: How can investors, especially young people, prioritize their mental health and well-being as they navigate the financial stresses of investing and financial planning?
A: By gaining knowledge about investing and learning what to tune out as they filter through the overwhelming amount of financial information available. It’s important to avoid excessive exposure to news that may induce fear or greed. The news is almost always focused on the short term, while investing is about the long term. Taking a long-term perspective and focusing on personal goals can contribute to mental well-being.
Q: How can investors ensure they have a solid financial plan in place to help them manage financial stress?
A: Communication with a financial advisor is key to building a solid financial plan. Sharing both positive and challenging information (such as financial struggles or changes in personal circumstances) with that person allows them to provide relevant guidance and adjust the plan accordingly. A financial plan should be seen as a living document that evolves with an individual’s needs and desires at different stages of life.
Advisors can assist investors in managing financial stress and avoiding emotional investing by providing crucial guidance and tools. They can also prioritize their clients’ mental well-being by incorporating behavioral finance techniques and addressing the emotional aspects of financial decision-making.
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