Douglas L. Nelson, CPA, PFS

Dec 14, 2020

Day after day, starting last summer, the phone calls have been rolling in to my office as predictably as breakers on a beach. That’s not unusual in turbulent times when clients often need reassurance about their financial security. What’s alarming about these calls is the dangerous riptide of fear – even panic – that runs through almost every one of them.

“Doug, we are seeing the end of our civilization,” one longtime client and friend confided in a recent call. “I am convinced of it.”

I’d known him for decades to be a resilient and resourceful businessman. Now a retiree, he has time to indulge a passion for history, namely the rise and fall of the Roman Empire. In recent months, his mood has darkened as he has become obsessed with the idea that the U.S. is  suffering the same fate as the Roman Empire. To him, the parallels seem obvious. He isn’t worried about barbarians at the gates. He’s convinced the barbarians have seized control.

Emotions are running high this winter and that’s understandable. For most of the last year, we have battled multiple crises: a worldwide pandemic, economic and political instability, urban violence, cultural and social upheaval. Most of us have never endured so much sustained turmoil while also enduring the isolation of quarantine. Grief, hopelessness, depression and fear are rampant. Even with a vaccine raising hopes of conquering Covid, we’re looking at a new normal for some time to come. No one knows what that will be like.

All the tension and uncertainty is creating the perfect potting soil for a crop of crazy thoughts. As a financial advisor, I know there’s a great danger when a client gives in to panic. Strong emotions are nothing if not the enemy of prudent financial planning. Anxious clients are incapable of making good investment decisions but very capable of making bad ones.

Hijacked emotionally beyond the reach of reason, they fall prey to an overwhelming instinct to take some kind of action, even if it makes no rational sense. Some want to pull all their money out of banks and brokerages and stuff it under the mattress. Others, in thrall to the chaos, want to gamble their savings wildly on hunches and rumors, convinced there’s a big score lurking somewhere in the pandemonium.   

When all is calm, it’s easy to reassure clients that they should stay the course and stick with their carefully crafted financial plan. After all, the data are clear. Despite political, social and economic storms, the stock market has been resilient for decades. Sure, there are short-term jolts but over time it continues to power upward.

Consider $10,000 invested in an S&P index fund in 2000. Left there, with dividends reinvested, it would have grown to $32,000. That $10,000 tripled during a period that included three bull markets, two bear markets and plenty of calamitous events: a terrorist attack in 2001, wars, and a worldwide financial crisis in 2008.

When panic sets in, though, all the data in the world won’t reassure clients. Not long ago, I got a call from another client, a pragmatic businesswoman with a long, successful career and a substantial retirement fund. “I can’t handle this guy in the White House,” she raged, adding a few expletives for good measure. “I’ve lost all respect for this country.”

She wanted to radically reshuffle her portfolio to reduce equities, a costly move that would have meant a big tax bill and, most likely, a lower rate of return for her portfolio. Why? Her explanation was tangled up with lots of intense feelings. She wanted to make a bold statement to express her despair about the future. Shedding stocks seemed the only way to protect her savings from what she feared was a looming Armageddon.

Note that I haven’t said whether she was incensed about President Trump, the current resident of the White House, or its future resident, President-elect Biden, because it is irrelevant. I’ve gotten outraged calls from clients on both sides of the political equation. The only thing that they have in common? Every one of them is convinced a president has the power to destroy the nation and its markets.

How Much Power Does a President Have Over the Stock Market?

They are wrong. Presidents and Congress have power, but not as much as some folks fear. Again, let’s look at some data. A 2020 study by Dimensional Funds examined U.S. market and economic data for a century, evaluating changes during each presidential term in measures including unemployment, inflation and GDP. The study found a consistent rise in equities over time whether the President was Democratic or Republican. In other words, the markets don’t really care who sits in the White House.

But a lot of investors do care, intensely, about what they hear on the news these days. One client demanded to divest the stocks of all major corporations that expressed support for Black Lives Matter; he was incensed at the possibility of the federal government paying reparations to the descendants of enslaved Black Americans. The cost, he fretted, would bankrupt the U.S. Fortunately, I was able to persuade him to voice his outrage not with his portfolio but by writing a letter to the editor or calling his Congressman or Senator.

These days, I spend as much of my time acknowledging and validating clients’ emotions as I do giving financial advice. That’s a task that suddenly seems far more urgent than creating spreadsheets and cash-flow calculations. Clients’ feelings must be addressed before we can make a good financial decision which is likely to be “do nothing.” Upending a well-reasoned investment strategy in a crisis is rarely a good idea.

One of the most effective tactics I’ve learned is to gently but directly address the fears. “What is it that scares you the most?” I asked the retiree who worries about the collapse of civilization and the dawn of a new Dark Age. His response was less about global issues and more about the pain of losing so many of the familiar pleasures and traditions that anchored his life.

He said he was afraid he’d never again enjoy a meal at his favorite restaurant. He was worried about being lonely over the holidays without visits from his grandchildren. He missed his annual fishing trip with his buddies at a remote cabin in Canada. He worried about the future of the cultural institutions that enriched his life so profoundly: the art museum, the theatre, the concerts.

Talking about his fears and sharing my own seemed to help. There’s a profound comfort to be had in airing out the terrors that haunt us to someone who listens with compassion. And there’s comfort in realizing that maybe we aren’t as alone as we feel.

“Joe,” I said, “I’m just as scared as you. Who wouldn’t be?” There was a stunned silence, then a sigh of relief. “You are?” he said. In truth, we financial advisors are feeling the same emotions these days but we don’t often disclose that to clients. We should. Empathy is powerful.

Getting Balance Back in Your Life

Like any good armchair psychologist, I’ve got some prescriptions that might help folks maintain a measure of equilibrium in the midst of this avalanche of frightening events.

First, turn off the television. TV news isn’t actually news, in my view. It’s jacked-up entertainment with an emphasis on drama and conflict delivered so frenetically that it would raise the blood pressure of a buddha. More specifically, avoid at all costs business and financial programs such as Mad Money with Jim Cramer. Those shows purport to offer educational and informative content. I think they’re nothing more than the financial world’s theatre of the grotesque.

Putting the television on pause is just the beginning, though. I recommend a radical media cleanse. Stop scrolling around the internet’s doomsday scenarios. Ignore YouTube’s circus barkers. Be aware that crackpot notions thrive in newsfeeds. (A high point of media ignominy: BusinessWeek magazine announced “The Death of Equities” on its cover in 1979, three years before the start of the great bull market of the ‘80s.) Enjoy your monkish retreat from the media for as long as it takes to reclaim some serenity and perspective.

Secondly, try to control the impulse to check your portfolio compulsively. Folks who check their portfolios daily seem to experience more distress. Of course, curbing the habit is easier said than done. For some, it feels like an itch that must be scratched, especially when the markets are volatile. But it is a habit that can create extreme – and addictive – emotional highs and lows.

Don’t make any financial decisions in haste or under the influence of heightened emotions. Consult your TCI advisor even if that means firing off a midnight email confessing you want nothing more than to bury your money in the backyard. Sure, you might be embarrassed in the morning but you’ll have done yourself a service, alerting the person whose job it is to protect you from your own bad judgement.

In the immortal words of Franklin D. Roosevelt who faced the economic and social catastrophe of the Depression when he took office in March of 1933: “the only thing we have to fear is fear itself.” That would be a fitting maxim to adopt now especially with the promise of an end to the pandemic. And if in the meantime you need someone to listen and reassure, well, the therapist is in.

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