Major stock indexes have given up much of their year-to-date gains after the past several days of selling. The year is days away from being half over, and the Standard & Poor’s 500 Index is up a few percentage points, while the Dow Jones Industrial Average is little changed for 2018.
If your investments are down for the year, take solace in the knowledge that they probably will recover. That’s what usually happens. The bigger question is: Will you?
Falling stock prices seem to precipitate a broad range of physical and psychological problems. Studies have found a strong correlation between market volatility and health. The number of hospital admissions increases; heart attacks rise. Anxiety, panic disorder and major depression increases significantly; suicides increase substantially. To take an extreme example, during the 1987 Black Monday crash when U.S. markets tumbled almost 23 percent in one day, California’s hospital admissions spiked more than 5 percent.
Perhaps every mutual fund, stock certificate and exchange-traded fund should come with the following notice: “Warning: Investing may be hazardous to your health.”
This is no joke. As my colleague Nick Maggiulli explains, “financial post-traumatic stress disorder” is a genuine threat to individuals. He says we “replay traumatic market moments in our head over and over again and they can come to define how we invest in the future.” There is a sort of “helplessness cycle” that I believe gives rise to dangerous and occasionally fatal emotional responses.
A helplessness cycle is caused by the illusion of control. It is how most people operate; that moment of realization that they lack control over many important events gives rise to fear and then panic.