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What To Do Instead Of Preparing For A Market Downturn

Updated: Feb 27, 2020

The stock market has reached an all-time high. Interest rates, unemployment and inflation are at historic lows. Trade deals have made it through a divided Congress. By many measures, we are in an idyllic financial climate that should have us dancing in the street, celebrating how far we’ve come from the depths of the Great Recession. And yet, most of us find ourselves oscillating somewhere between cautious optimism and downright skepticism.

We might attribute some of our reticence toward celebration as a response to current events that darken the rosy picture the stock market would paint. We’re in the midst of a presidential impeachment trial, fearing conflict with the Middle East and wondering how the 2020 election might upset the current balance. But if we think through recent history, political upheaval and fear of international conflict have been there through it all, during good and bad markets alike. If the amount of angst caused by current events has remained relatively equal over time, shouldn’t we feel happier, or at least relieved by the financial benefits a strong economy offers? Why do we still struggle to enjoy the experience of being an investor even when markets are at all-time highs?

It’s the nature of how we think. As we hear report after report about the growth of the market, now in its eleventh year of upward movement, what goes through our minds? The higher value of our portfolio? Maybe. The fact that we’ve been able to retire, remodel, or travel as a result of our larger nest egg? Perhaps. By far the most frequent thought we have is “when will this come to an end?” We wonder when the shoe is going to drop and how far it will fall when it does.

The uncertainty in markets never really goes away, even in the good times. In that sense, the experience of being an investor is consistent; we perpetually live with uncertainty about what will happen with our money no matter how high the Dow Jones climbs. That doesn’t mean we can’t find joy in the good times, but it does mean we have to find a way to be happy while tolerating our inability to predict the future.

Our capacity for experiencing joy as a positive emotion, in finance and every other area of life, relies on our ability to manage the sense of vulnerability we feel about the unknown. If in moments of joy, we can quiet the worry, then we can experience joy for what it is. If in these moments, we can’t overcome the fear that whatever is making us happy will go away, then the experience of feeling joy becomes muted or even negative.

Imagine, as an example, the way a parent feels watching his or her child sleep. A natural sense of love and happiness fills her heart, then seemingly out of nowhere a dreaded thought comes to mind: the image of something harming this tiny human she loves so much. Contentment turns to worry. Renowned author and research professor in social work, Dr. Brené Brown refers to this vigilance as “foreboding joy” in her book The Power of Vulnerability. She explains that when we imagine the good things in life going away, it’s our way of dress rehearsing tragedy. By mentally practicing for tragedy, we hope to beat vulnerability to the punch and somehow insulate ourselves from future pain.

This is the very thing that many of us do during good financial times. Rather than experiencing the good, we anticipate how things will go wrong. Not only do we worry about the next market drop, we worry we’ll lose our job, that our Social Security benefits will stop or that something will make us work longer than we planned. We let the existence of uncertainty turn a positive time into one spent foreboding the next bad thing to come.

In another of Dr. Brown’s examples, she describes a man who intentionally went through life reigning in joy. He never expected too much, so if something bad happened he was prepared and if something good happened, he was pleasantly surprised. One day, he and his wife of 40 years were driving and got into a car accident that ultimately took her life. He shared that the first thought he had once he realized she was gone was that he should have leaned further into the happy moments he had with her. This man spent his entire life dress rehearsing tragedy, yet it did nothing to lessen the pain of his loss. The only thing it spared him were moments that he could have been happier.

Though financial planning can explore your worries and help insulate you from them, there is nothing that will remove the uncertainty altogether. The best we can do is enhance our ability to tolerate the uncertainty that inevitably exists.

According to Brown, the antidote to foreboding joy is to respond to fearful thoughts that creep in by practicing gratitude. Rather than focusing on what might go away, focus on that for which we are grateful. Turn our attention to all that we have, not all that we might lose. Experts argue that there is no such thing as joy without gratitude and that gratitude is an active practice. We must practice seeking out gratitude in the moments when it feels least natural and in doing so, we will retrain our brains to more naturally focus on the good.

Ultimately, it comes down to a choice about how we will use our mental energy. While it comes naturally to the worriers among us (of which I am one) to try to prepare for the bad, all that ultimately does is limit our joy, not pain. We can apply the same energy toward making a habitual practice of gratitude and give ourselves the tools we need to protect our joy when the anxious thoughts come.

All the conventional financial wisdom about working hard, saving money, investing in the market and enduring its ups and downs, has no real point if when we reach our goals, we won’t allow ourselves to enjoy them. Fortunately, that is one tragedy that we can prepare to avoid.

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