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How to Manage Your Hardwired Instincts

Behavior

How do you handle times of heightened financial uncertainty? As humans, all of us are hard-wired with a ‘fight or flight’ mechanism. You can’t realistically change this, but you can manage how you respond to stress about the markets.

One big contributor to stress is your self-talk, the voice in your head. Your internal self-talk influences everything you do. The sheer volume of self-talk outweighs your outward speech by 5-10 times, even if you speak rapidly. The key is not so much how you think, but rather what you think about.

How Big Financial News Impacts Your Mentality

The financial media greatly influences what you think about. Unfortunately, the financial press in general isn’t very reliable as a source of unbiased reporting. Over the years, anodyne headlines have quickly given way to sensationalistic, “clickbait” stories.

For context, recalling previous periods of financial stress is useful to reconstruct the events and eventual outcomes. Of course, the most recent calamitous timeframe was at the onset of COVID-19 in early 2020. At that time, we were all concerned not only about wealth, but our health as well. The broad stock market declined by more than 33% in just a few weeks. Despite all that, the S&P 500 ended up with an 18% return for 20201.

Consider yet another period of market chaos during the 2007–2009 financial crisis. From late fall 2007 until March of 2009, the S&P declined by about 56%. That time severely tested the patience of most investors. However, 2009 as a whole saw strong stock market gains, and the eight calendar years following were all positive for the S&P 5002.

Do these recent examples translate exactly to today? Perhaps not, but actual market history probably differs from your self-talk and selective memory.

It’s helpful to remember that the financial markets are composed of people just like you, as well as people very different from you. Your particular beliefs are shared by some market participants, but not by others. That’s incredibly important to understand.

Develop Your Financial Philosophy

One huge step forward in managing your emotional instincts is to develop a comprehensive philosophy about investing. You already have a more general philosophy of life. Why not hone this to coordinate with your investing decisions?

It’s hard to know exactly how you’ll react to a significant market decline until it happens. The context or immediate reason for the decline matters. You need to be self-aware enough that you can determine just how much endurance you can muster.

Over the past half century or so, the broad stock market has declined by about half on three different occasions3. Even so, the upward trajectory of the stock market has dramatically overwhelmed these periods of temporary decline.

Find a Trusted Partner

Part of our role is to guide you with facts instead of feelings. All investors have questions about their future, and these questions form the core of the financial planning purpose. We want to help you normalize financial decision-making with intentional choices that are aligned with your long-term planning goals.

I use the words long-term with intention, as the twists and turns of the financial markets day-to-day are just noise. Over long periods, the S&P 500 is positive around 53% of the trading days. That’s right, barely half the time. However, since 1980, 75% of the calendar years have been positive for stocks4.

That’s your main mission. Obscure the temptations of today, in favor of the gains from staying invested for the long term. Start there. Ready for a real conversation?

Disclosure

Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Market performance information and projections have been provided by third-party sources and, although believed to be reliable, have not been independently verified and its accuracy or completeness cannot be guaranteed. Please visit our website https://apollonwealthmanagement.com for other important disclosures.

Sources:

  • 1Dimensional Matrix Book-2024
  • 2Dimensional Matrix Book-2024
  • 3Yardeni Research
  • 4J.P. Morgan- Guide to the Markets