Market swings usually push up fear index
The fear index. Yes, something colloquially called the fear index (VIX) spiked last week. I think that means we’re supposed to be scared, or people are scared, or your broker is supposed to tell you to not be scared by violent market swings. It’s certainly never fun to watch your account values adjust (a rose-colored word for plummet), but I wasn’t scared. Personally, a rough 168 hours in the market, or 8,736 hours for that matter, isn’t enough to have me fearing for the validity of my long-term investment strategy.
We’re constantly reminded, and appropriately so in my estimation, that we should’t let the stock market spook us.
While from a planning perspective you're not supposed to fear the stock market, you’re culturally allowed to. That’s because the market is thought to be out of your direct control. The assumption is that you will fear the market. This is precisely why there’s an entire movement within the financial industry meant to dissuade you from that which feels so natural — out and out worry. It makes sense, right? Fearing what is out of our control is, in a way, prudent. It’s like not being worried about your driving in slick winter conditions, but definitely being worried about other drivers. There’s logic present here.
Don’t mistake this advice for repressing all financial fears. I want you to fear parts of your finances.
Fear will lead to action
Instead of fearing and reacting to processes out of your control, start fearing and reacting to processes within your control. Fearing what you control will lead to action. At least it should.
Here’s to hoping I don’t fill your head with things to worry about, but here are the most common financial fears I see on a regular basis, outside of stock market fears: job loss, major homeowner expenses, not having enough money for college, not having enough money for retirement and not having enough money for assisted living expenses. Most, if not all, of these fears could be classified into a category we’ll call fear of failure (FOF). And don’t forget about the very real and slightly ridiculous type of fear that falls short of fear of failure, but is no less worrisome and oftentimes more influential — fear of missing out (FOMO).
Are you more influenced by your financial fears or your fear of missing out on simple pleasures? Anecdotally — and nearly every financial stability statistic supports this observation — people tend to be more influenced by FOMO. FOMO leads to subpar consumer decisions and a lack of resources for real financial priorities. And more than anything it allows FOF to persist. Addressing FOMO increases FOF.
Try, if you can, to suspend FOMO right now. In other words, don’t worry about the things or experiences you don’t have. Instead, let’s dive deeper into some fear of failure.
What do you fear in your financial life? Do you fear a financial emergency happening prior to you securing a healthy emergency fund? Do you fear losing your job? If so, what are you doing to make sure that fear is never substantiated with the harsh realities of sudden unemployment without a contingency plan? Rectifying this glaring botheration, or any similar problem, is the essence of wise financial planning. Good planning not only helps you accomplish a bevy of financial goals, but it also can prevent you from the chaos unchecked fears can manifest.
If you spend five years fearing the impact of your refrigerator conking-out but do nothing to limit the impact of your fear becoming a reality, then who or what is supposed to swoop in save you? Magic?
Detail your money fears
Sit down and make a list of your real financial fears, and then next to each fear, write down what you are doing to lessen the impact of the fear becoming a reality.
Here’s an example — I’m terrified of being 52 years old. Because when I turn 52, I’ll have two children in college, I’ll be closer to the end of my career than the beginning, I’ll likely have significantly higher health care costs than I do now, and all of these things add up to having the most significant need for money I’ve ever had before.
To ensure my very real fear doesn’t become a very real problem, I invest aggressively to fund my kids’ college education and have structured my mortgage to be paid off by age 52. Therefore I’m attacking my need for cash problem from two distinct directions — growing my supply of funds and shrinking my need for funds.
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Fear what you can control, then take action to alleviate the fear. Do you fear dying and leaving your family in a lurch? Buy life insurance. Do you fear your 12-year-old car breaking down? Start saving for a new car. Your fear will lead you to the financial "promised land."
Peter Dunn is an author, speaker and radio host, and he has a free podcast: "Million Dollar Plan." Have a question about money for Pete the Planner? Email him at AskPete@petetheplanner.com
The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.
