Podcast from Money with Friends
A pandemic, coupled with increasingly volatile stock markets, makes even the savviest investors cringe. If you’re in the markets at all, chances are you’re paying attention and you’re panicking. Dr. Brad Klontz, associate professor of practice in Financial Psychology and Behavioral Finance at Creighton’s Heider College of Business suggests we should acknowledge the panic, but don’t react.
In his recent “Money with Friends” podcast, Dr. Klontz compares our reaction to the current market volatility to that of “running with a herd”. He says, “when it comes to big money movements, our amygdala, the emotional part of our brain, takes over and reacts as if it’s almost a life or death response. There is an intense sense of fear if you’re not running with the herd.”
While the panic is real, Dr. Klontz advises us to acknowledge the fear, but not react or let emotions drive investment decisions. He explains the importance of calming down and allowing time for the ‘thinking brain’ to kick in so wrong decisions aren’t made. He warns that “running with the herd is utterly destructive and terrible when it comes to our financial life.”
To combat the panic, take time to process and calm the ‘emotional brain’. Take deep breaths, consult an expert and use mental accounting to evaluate your portfolio. In the end, it’s ok to have feelings of panic, but don’t do something that goes against the strategy that was put in place when you were in a rational state of mind.
To hear more on Dr. Klontz’s point of view, play the complete episode below: