Mental Breakdown from the Market Meltdown

By Sarah Carlson, CFP®, CLU®, ChFC®

Many people are suffering a mental breakdown from the market meltdown. Market pullbacks are never easy, especially if you are retired and depend on your investments to generate income to pay your expenses. 

For so many people, this market pullback is especially difficult. My team and I have been fielding so many doom and gloom calls from people afraid of what is next. If you feel this way, too, you are not alone.

What the Research Shows

Part of my job as a Spokane financial advisor is to give perspective, not only from my over 30 years as an advisor, but I also study the market and what economic strategists are forecasting. This market pullback is not so notable and should have been expected. Let me explain.

Our government pumped so much cash into our economy during the pandemic to help support individuals and businesses hurt by the shutdown. Our government artificially kept interest rates (fed rate) historically low so people and companies could borrow at attractive rates. 

They also did this by sending checks out to individuals and businesses through the PPP Loan program. The New York Times recently reported that over $5 Trillion was pumped into our Pandemic Stimulus payouts.

When that kind of newly printed cash chasing limited goods from any economics 101 class, we know that more demand and fewer supply results in higher prices. Higher prices mean inflations that take hold and tend not to go down as fast as they went up. The only tool the government has is to raise fed rates to help discourage borrowing and reduce demand.

The Federal Reserve's Rate Hikes

When I started my career, the Federal Reserve used to change interest rates, and they gave no advance notice. Those past interest actions not anticipated would rock the markets and often add to the drama. 

Now, the Federal Reserve makes announcements on their intentions, not only what they most likely will do; they even give us, the public, a time frame of when they will do it. Lately, the Fed has announced raising the rates, and guess what? They have been executing on that promise. So why are we as a society so freaked out? These changes can and should be expected.

Also, why are we scared about a recession? What's the big deal? Seriously, a recession is a regular economic trend that usually follows periods of expansion. A recession results as the Fed raises rates and demand for goods softens.

What Can You Do to Reduce the Market Drama?

Consider talking with your advisor about your concerns and getting their perspective. A qualified, licensed professional may have a vantage or opinion you may not have considered. 

Also, consider turning off the TV and putting away your iPhone, not just for hours but perhaps a few days. So many news organizations are there to sell advertising, not educate viewers. If those news outlets can freak you out enough, you will stay tuned to see the advertisement.

Conclusion

This current market pullback is not so special, and we have been through many of these turbulent times. And just like every time in the past, I predict we will get through this too. 

Let's focus on a response to the information we hear that is more in line with our timeline and overall goals. This economic unrest will not be the last market pullback we have. All the past market pullbacks have been followed by a market recovery eventually.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.