Our hearts go out to those suffering over recent months due to sickness and war. While the market responses to current events are often surprising, investors are profoundly impacted by all that is going on. We are working hard to manage the effects of these events on your financial well-being.
Our perspective determines our destiny. It creates a lens that clarifies or distorts our whole world and how we interact with it. In this article, I want to focus on the stress it creates. We generally think of stress as something to be avoided, and however, it too can be helpful. It can motivate us to action, enhance performance, or even save lives. Felt too powerfully or too often, and the physical and emotional toll outweigh the benefits.
Coming out of the 2008 financial crisis, Dr. Alia Crum did a study with UBS—one of the largest banks in the world. Her goal was to dive deep into how adversity and stress impact us. She wanted to see if it was possible to help people improve their lives by educating them on attitude.
Dr. Crum divided employees into three groups. The first received instruction on the damaging effects of stress, which are commonly found in the world. The message to them was that stress would crush you. The second group received the message that stress can bring out the best in you. They saw a film explaining the benefits of stress, and they watched examples, like LeBron James making a game-winning shot and Winston Churchill rising to meet the challenges of WWII. The third group received no instruction.
The following week, UBS employees who received positive messages reported that week fewer backaches, better sleep, and better performance at work. Just nine minutes of positive messages had an immediate impact.
Similar results are found in other studies, from allergy treatment to diet and exercise and drug testing as well. That’s why the FDA requires drugs to be compared to a placebo. Even placebos work, and there is power in perception.
How does the way we view risk in our investments impact our decisions? We typically think of risk as a bad, four-letter word—a necessary evil when it comes to the stock market. Looking deeper into the idea, we find an important relationship between risk and return. This means that risk does not have to be a bad thing. Managing it correctly with a positive attitude and risk can become a valuable tool.
As investors, risk is a normal part of life. Yes, it can be debilitating, but only when we give it too little or too much attention. Ignore it or run away from it, and it will crush you. Manage it thoughtfully with a plan, and it can be empowering. Those of you who have been investing for decades will know this best. The market rises, and the market falls. It’s all part of a cycle. The risk we take is simply a tool that creates opportunity.
We don’t have to love stress, and we don’t have to love risk. However, we make better decisions when we focus on the positives. Even in the devastation of war and financial turbulence of 2022, we will make better decisions when we embrace the correct levels and remind ourselves to think long term.
