Thought-Provoking Thursday: Are You Afraid of the Markets?
What’s your greatest fear? Spiders? Clowns? Something you encounter every day, like public speaking or using the elevator? Or perhaps, like the majority of respondents in a recent study, these frightening things pale in comparison to something that has the power to make or break a person’s fortune: the stock market.
According to a survey by Harris Interactive on behalf of Nationwide Financial, more people are afraid of investing in the stock market than they are of dying. Fifty-seven percent of survey respondents said they are afraid of dying, while 62 percent are afraid of investing in the market and 83 percent of people are afraid there will be another financial crisis. Nationwide Funds president Michael Spangler says that these fears are translating into fewer people seeking the help of a financial adviser and putting their money to work in the market.
“I think the flow of funds is very informative. We have a lot of cash on the sidelines through 2011 and 2012, so investors have missed out on a lot of growth in the equity markets, and have missed out on double digit returns thus far on this year,” he said. “I think we see people not planning, and not really developing or seeking a financial plan.”
Despite openly fearing the markets, the study found that only 43 percent of Generation X and 51 percent of Millennials are using a financial adviser to help manage their money. Dr. Michael Klein, a psychologist with a private practice in Manhattan, says that this behavior is a typical of people with fear or anxiety.
“The absolute signature response to anxiety is avoidance. In this case, the avoidance you see is people staying on the sidelines and not contributing to the market,” Klein said, noting that avoiding the markets because of investing anxiety is no different than people who fear spiders or elevators avoiding spiders and elevators.
Klein explained that the market crash of 2008 was a traumatic event for most people, and as such, that memory is overriding the brain’s ability to objectively analyze the market and see that, as a whole, investing can be a good thing.
“What we know about trauma is the availability of the memory of 2008 is very very fresh. It trumps [the idea] that over the past 100 years overall, overwhelmingly the historical evidence shows that investing in the stock market over the long run is a good idea,” he said. “Right now what you’re seeing is the fear memory trumping the slightly longer memory that says historically, you’ll come out ahead.”
While he’s never treated a client with an investing phobia, Klein says overcoming investing anxiety is similar to overcoming any other anxiety: gaining slow exposure to the feared thing, a little at a time.
“Rather than stay on the sidelines you dip your toe in,” he said. “A person could invest a portion of money that they’re comfortable with. You have to expose yourself to some of the fear and allow it to extinguish the past over time. You do it in steps that feel manageable.”
Klein and Spangler also noted that seeking the help of a financial adviser who seems genuinely trustworthy can be another way to overcome a fear of investing.
“Find an adviser that that acknowledges those fears,” Spangler said. “There are financial advisers [out there] that are really going to listen to you and act on your behalf and think about the whole picture.”
