The stock market can be stressful. Right? And Donald Trump with his ‘Art of the Deal’ negotiation tactics can really play havoc with your stocks’ values, your super balance and your nerves.
Right now, some of Bill Shorten’s controversial policies are stressing out investors, small businesses and self-funded retirees.
Yep, and it’s especially so now, with many investors waking up each morning pondering whether we’re on the cusp of another crash, just like the one in 2008. Talk about inverted yield curves and trade wars doesn’t help much either.
My interest in stress and zebras was created by a story in the AFR a few years back by Jo Marchant, who cited the work of US academic Robert Sapolsky. He wrote the neatly titled book Why Zebras Don’t Get Ulcers.
Unlike lots of human beings, a zebra gets scared and worried temporarily when say a lion is chasing them but once the rival is beaten, they let it go. If the zebra loses the race, they’re not around to worry but importantly if they win, they get over the stress that there are ‘bastard’ lions out there.
Animals default back to a normal physiology after a stressful life and death race but lots of us keep stressing out about the threats to our happiness, our safety and our wealth. This is where the stock market can be a real threat to someone’s longevity!
But be clear on this: we are meant to encounter problems. Life is not a box of chocolates where every encounter is a beautiful nutty experience — some will be artificial cherry and other distasteful creations of chocolatiers!
Sapolsky says it’s how we respond to the negatives of life that determines the harm it can impose on us.
What we’re really talking about is self-harm and therefore we have a self-interest in trying to change the way we respond to negative inputs.
Occasional scares are OK and are positive for the physiology as it gives your natural system a good work out. But stressing too much and for too long about what can go wrong is positively bad for you.
What was really interesting in a related study was when a researcher told a group that stress during an exam was actually good for their cardio responses and their exam results all ended up better than the group who weren’t allowed to stress out about the anxiety of it all.
People who worry about a threat for too long wind up with heart problems and consequently lose out both physically and mentally!
So, what can I say about stock market threats that really do stress out lots of retirees and those trying to build up a decent nest egg for an eventual retirement?
Have a look at this chart for starters. It’s the one that makes me live comfortably with all the stupidity that from stock markets and all the doomsday merchants who love to scare people endlessly.
This shows what happens to $10,000 over the timeframe 1970 to 2009 — that was the year that the stock market rebounded after the 50% slump in the stock market with the GFC.
You can see that if you’d invested in Aussie shares, your $10,000 went to a cool $453,165. And if you played US shares, it would have gone to $601,747!
Both of these amounts are a lot higher today, despite the recent falls in the stock market and it shows that despite all the corrections and crashes, if you have a portfolio of stocks that can match the S&P/ASX 200 index and you re-invest the dividends, you’ll do very well over time.
The lesson is not to get stressed about these times now when we’re being chased by money hungry short sellers and hedge fund managers, who are akin to lions.
Sure, you have to arrange your finances so you can rest peacefully once the ‘chase’ is over but I guess if you make sure you’re always faster than the ‘lions’ out there, you can really KO stress totally.
Here’s what I recommend to de-stress your stock market life:
• Build up your money in super or your stocks portfolio inside a self-managed super fund.
• Make sure your portfolio is as good as the index in terms of returns.
• If you’re young, opt for the higher risk option in super. But after 50, go to a balanced option.
• If you say have a million dollars in super, which returns around 7% a year, you’d be living on about $70,000 a year. However, in years where the return is say 12% or $120,000, take the extra $50,000 and bank it to build up a cash buffer. This means you can keep living on $70,000 in years when the stock market crashes, where returns have been pretty average, if you were heavily in stocks.
The chart above shows that crashes and corrections happen but, over time, the value of your investments defy the scary periods like the ones we’re seeing right now.
I must admit I never realised how at one I am with zebras, but I do like the idea of it!