← WSJ Your Money Briefing
WSJ Your Money Briefing
Coronavirus: The Effect on Your 401(k)...and Your Mind
00:08:03
Wall Street Journal "Intelligent Investor" columnist Jason Zweig discusses the stress brought on by the coronavirus pandemic, and how investors can avoid making knee-jerk decisions in a bear market.
Loading summary
Transcript25 lines
- [00:00]
A
Access to affordable credit helps me pay my employees, but I don't really need it.
- [00:05]
B
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [00:15]
A
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [00:20]
B
they need while increasing megastore profits. They deserve it, don't they?
- [00:26]
A
Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.
- [00:37]
C
Here's your Money briefing. I'm J.R. whalen for the Wall Street Journal. 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?
- [00:58]
D
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.
- [01:18]
C
That's Wall Street Journal Intelligent Investor columnist Jason Zweig coming up. He'll explain what investors should do to regain their sensibility and make wise decisions in 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.
- [02:05]
D
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, and that can have a huge and very negative impact on your decision making that you really need to counteract.
- [02:26]
C
But what do medical professionals say about brain activity as a result of all this and how it can shield rational thinking?
- [02:34]
D
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, you know, 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. 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 decision decisions in mind.
- [03:48]
C
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.
- [03:56]
D
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.
- [04:28]
C
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.
- [04:42]
D
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 9, people in certain industries were hit really hard. Financial industry, housing industry, you know, 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. There could be, you know, millions of people either thrown out of work or put on furlough. And this is just not a time to add intense financial risk to the risk your livelihood may already be facing.
- [05:35]
C
And in terms of the stress and pressure that the effects of the pandemic have on us, what can we do to ease that stress and regain some sensibility in our thinking process?
- [05:45]
D
The single most important thing to do is to take actions that restore your sense of having some control over the situation. What makes what's going on right now so scary to so many people is that it's incredibly uncontrollable I mean, it's a virus. We can't see it. Millions of people may be carrying it without even knowing it. We could have members in our own families who are sick and we don't even know it yet. We don't understand fully the consequences for the economy. So any small measures that investors can take that will enable them to regain a sense of control is what people should be focusing on. And there's a few of those. First, as I mentioned earlier, just take gradual, not sudden steps. But any small step you can take will probably make you feel better. If you can't stand the risk of holding stocks, don't sell them all at once. Sell a small amount and parcel that out in equal installments over time so that you don't concentrate the risk of the decision on any one day or even in any one month. Another great thing that investors can do is if you have an ira, you could convert that from a traditional IRA to a Roth. Now that asset values have fallen, stocks are down almost 30%. You can reduce your immediate tax bill on that and then any future growth in the Roth IRA would be tax free for the rest of your lifetime. It's a smart move. It doesn't do a lot of short term damage to your portfolio and it can position you better for the long term and especially give you a sense of taking control. You know, what makes this crisis unique, I think, is that so many people are experiencing it in a state of extreme social isolation. I mean, I'm sitting in my home office by myself and I think millions of investors in America and around the world are experiencing this alone. And as a result, you need to restore a sense of human connection and shared experience with other people to the greatest extent you can. And it doesn't have to center around your financial life. But anything you can do to sort of build your own sense of calm at this time of incredible upset is good not just for your mental health, but your financial health as well.
- [08:25]
C
All right, that's Wall Street Journal Intelligent Investor columnist Jason Zweig with us. Jason, thanks for coming on the show.
- [08:30]
D
My pleasure.
- [08:31]
C
Thanks, J.R. and that's your money briefing. I'm J.R. whelan for the Wall Street Journal.
- [08:35]
A
Access to affordable credit helps me pay my employees, but I don't really need it.
- [08:41]
B
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [08:50]
A
See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [08:55]
B
they need while increasing megastore profits. They deserve it, don't they tell Congress
- [09:02]
A
stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.