For most of us, stock market turbulence never ceases to inspire a fight or flight response. That volatility and uncertainty might not represent a physical threat to our wellbeing, but it certainly can have a similar impact on our levels of stress and logical response. Take an instinct that is meant to react to a moment of danger and spread it over weeks and months of market uncertainty and things can start to feel dire.
The present moment may have its challenges, but if we look to the past, we can see historical evidence that the market will rebound. We saw it after the Great Depression and the Great Recession and there’s no reason to believe we won’t see that pattern repeat itself. Perhaps that’s why the most common investment advice you’re likely to hear in moments of uncertainty is this: Stay the course.
Of course, saying “stay calm,” is more simple than actually staying calm, but John Jennings at Forbes has assembled a list of strategies to help fight the fear. Our favorite tip? Get your cognitive biases in check.
In general, this is a thought exercise. Slow down, take stock of what you’re feeling and why and then reframe those thoughts with logic that you know to be true, versus instinctual thoughts triggered in your brain by fear or anxiety.
First up, tackle loss aversion head on. Loss aversion refers to the theory that people experience the pain of loss about as strongly as pleasure. It follows, then, that we react aggressively when faced with the prospect of a financial loss. However, taking a few moments to contextualize this perspective can help fight the fear. Consider the recent declines in the markets. Loss aversion would have us getting out of Dodge for fear things might get worse.
However, if we stop to consider other factors, such as our carefully planned long-term investment strategies and diversification options — commercial REIT, private real estate, ETFs, commodities or bond investments — it becomes a little bit easier to divorce the present moment from the goals we are working toward and the best approach to reach them.
The second instinct to curb is known as anchoring. Anchoring, or the act of having a particular number or goal in mind, is a common trap for investors, who tend to anchor on the highest value their portfolios have reached. This negates the long-term perspective of growth over time. Yes, one particular account might be down month-over-month, but it’s likely that you’ve had significant overall growth in the past five years.
Instead of visualizing a specific number at a specific moment, imagine what you are working toward. Retirement, property, a boat — whatever it is, it’s specific and even measurable, but less likely to tempt you into tracking portfolio valuations day-by-day.
So, stay the course, stay smart and stay safe. The future belongs to those who plan for it.
The views and opinions expressed in this commentary reflect Modiv Inc.’s (together with its affiliates, “Modiv”) beliefs and observations in commercial real estate as of the date of publication from sources believed by Modiv to be reliable and are subject to change. Modiv undertakes no responsibility to advise you of any changes in the views expressed herein. No representations are made as to the accuracy of such observations and assumptions and there can be no assurances that actual events will not differ materially from those assumed. The forward-looking statements in this paper are based on Modiv’s current expectations, estimates, forecasts and projections, and are not guarantees of future performance. Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. These materials are provided for informational purposes only, and under no circumstances may any information contained herein be construed as investment advice or as an offer to sell or a solicitation of an offer to buy an interest in any Modiv program or offering. Alternative investments, such as investments in real estate, can be highly illiquid, are speculative, may not be suitable for all investors, and there is no guarantee that distributions will be paid.