Coronavirus: The Effect on Your 401(k)...and Your Mind
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen for The Wall Street Journal.
How is the coronavirus pandemic affecting investors' attention and stress levels?
The coronavirus epidemic, coupled with social distancing and working from home, has left many of us in front of the TV, watching the stock market fall and taking our portfolios and 401k retirement savings with it. That has a very real impact on our wallet. But what about the effect on our minds?
Think of a crashing stock market or a bear market as if it were an actual bear. You would be focused on safety and survival. Your focus of attention will narrow. Your heart rate, your breathing rate, even your production of sweat will rise.
That's Wall Street Journal intelligent investor columnist Jason Zweig.
Why does Jason Zweig compare a bear market to facing an actual bear?
Coming up, he'll explain what investors should do to regain their sensibility and make wise decisions in the market and in life.
During the coronavirus pandemic, our sense of fear is heightened by concerns over our health and our financial well-being. But there are ways to overcome the weight of fear and avoid making decisions you might regret later on. Wall Street Journal intelligent investor columnist Jason Zweig joins us to discuss. So Jason, it seems like the daily reports of illness, death, and the stock market drops are colliding into people's brains like a set of locomotives.
It's very important for investors to realize that at a time like this, your normal processes for making decisions are really disrupted. I mean, when we're under stress, our brains just don't work the way they normally do. And that can have a huge and very negative impact on your decision making that you really need to counteract.
But what do medical professionals say about brain activity as a result of all this and how it can shield rational thinking?
Think of a crashing stock market or a bear market as if it were an actual bear. I mean, if you were in the presence of a giant bear, say a black bear or a grizzly bear, you would not be able to stand there and think of your favorite lines of poetry or baseball statistics or your favorite book or movie you would be focused on safety and survival. And that's the same focus that you would have if you were confronted with a bear is very similar to what goes on in your brain when you're confronted with a bear market.
How does stress impair long-term financial decision-making during a market crash?
Your focus of attention will narrow, your heart rate, your breathing rate, even your production of sweat will rise, your muscles will tense. You're basically prepared for fight or flight. at all times and that makes it very difficult to focus on longer-term decisions, to take in multiple sources of information and evaluate their accuracy and reliability, and also to plan with the full context of your decisions in mind.
And that long-term thinking really intersects with people's money in the markets and how stress can cause them to make knee-jerk decisions.
Absolutely. At a time like this, people are much more inclined to make impulsive, big, sweeping decisions like, I'm getting out of the stock market now. Or there also are people who are out there buying stocks as impulsively as other people might be selling them. And it's really important at a time like this to take measured, slow, gradual, incremental steps that don't put you in a position of having made a decision you can't reverse.
You know, it's more than just medical theory and advice we're getting from professionals. We're told that the markets will come back, and they always do. But now word comes that companies are cutting dividends. And that's real money that's not going to be showing up in our accounts.
What practical steps can investors take to avoid impulsive 401(k) moves?
That's very true. And I think it's also important for everyone to bear in mind that like all crises in the financial markets, this one combines what's going on in the stock and bond markets with what's going on in our own private lives. But it does so even more than usual. I mean, in 2008 and 2009, people in certain industries were hit really hard. financial industry, housing industry, and anything related to real estate like construction. But in this case, small and medium-sized businesses all across the country are likely to have to lay people off.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:09
2
How is the coronavirus pandemic affecting investors' attention and stress levels?
0:09–0:50
3
Why does Jason Zweig compare a bear market to facing an actual bear?
0:50–2:42
4
How does stress impair long-term financial decision-making during a market crash?
2:42–4:10
5
What practical steps can investors take to avoid impulsive 401(k) moves?
4:10–5:35
6
How can converting a Traditional IRA to a Roth help during market downturns?
5:35–6:39
7
What strategies restore control and reduce isolation-driven panic in a crisis?
6:39–8:03
Speakers
2 identifiedMore from WSJ Your Money Briefing
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