Why Panic Feels Productive (But Usually Isn’t)

We had two consecutive snowy weekends in a row in Durham NC and let me tell you, people here freak out when it snows. As a Midwesterner, there is a sort of eye-rolling tendency when everything starts to shut down at the smallest rumor of snow. But I get it: people here didn't grow up driving in the snow, so it's actually dangerous for people to be out and about.

One consequence of the anticipatory snow freakout is a rush on grocery stores. Again, I get it: if there's snow predicted on Saturday and you know the city will shut down, you'd better do your shopping early in the week. But I've noticed that people binge buy very curious things. For example, I'd estimate that 90% of all the milk in my grocery store was gone by midweek. Similarly, the produce section, the eggs, and the meat were cleaned out. It's like people think to themselves: "I might be stuck inside all weekend, so I'm definitely going to drink a lot of milk and cook tons of chicken."

And it's not just that people bought their groceries early so they wouldn't have to brave the snow. I can promise you that the grocery store would love nothing more than to sell more items to eager shoppers. That means that the entire inventory for the weekend had been cleaned out by midweek. So people didn't just do their shopping a few days early; they actually bought much more than normal of the most expensive (and most perishable) stuff.

That got me thinking: items that need refrigeration – like meat, veggies, and milk – are actually the worst things to have if you were trapped in a winter storm and the power went out. If you had to go without power for a few days, you'd actually want tons of canned and dried foods on hand. But guess what there was still plenty of on the shelves? That's right: plenty of dried beans, rice, canned vegetables, shelf-stable cartons of broth, etc., etc.

So not only are people panic buying way more than normal, they're also buying the most expensive and most perishable items in the store. They're spending more money to buy items that are less useful if things really go wrong. 

And I think there's a lesson in there that directly translates to money.

When people feel panicked, their bodies release adrenaline & cortisol and go into fight-or-flight mode. That lizard brain wants nothing more than for you to take action right now. And so people can't wait to do the first thing that seems like it will make a difference – even when it's not actually all that helpful.

I see this most often when people are worried about their investments. The markets feel scary right now (BTW, the markets always feel scary), the news is shitty, and so you want to do something – anything – to feel like you're making a difference. That's when people start to ask, "should I sell my investments and wait until it's safe?" Or "should I be putting my money in gold or silver?"

When those anxious, panicked feelings pop up – the ones that you want to fix right now – the smart thing is to hold your horses and take some time to think about what's best in the long-term. Because the fast, panicked decision is not always the best decision.

Holding a bunch of cash on the sidelines or owning gold & silver are not inherently bad ideas. But making those decisions right now, hurry, please make it better is not a great strategy. Your investment strategy should be chosen to work over many years and decades, and should have market declines and even market crashes already baked in. To put it another way, the best strategy isn't the one where things never go wrong, but one in which you're already prepared when they inevitably do.

If holding a bunch of cash outside of investment accounts lets you sleep better at night, then I'm all for it. Similarly, if a less aggressive investment approach helps you not freak out, that's a good thing. Let's beef up those savings accounts, let's dial down your risk exposure, and heck, you can even hold a few ounces of gold if that lets you feel safe. Because, paradoxically, you can actually be a much better investor when thoughtfully reducing risk ahead of time, because that means you're more likely to stick with your investment strategy for a longer period of time.

Every investor's super power is owning their investments for a really long time. That's because of the power of compounding growth, which starts slow and then starts to snowball over time to life-changing results. But you can't get that amazing compound growth if you decide to bail on your strategy when it starts to feel uncomfortable.

Let's bring this back to the ol' storm analogy: If you want to be prepared for a big storm that will shut down your city, you should stock up on lots of water (a good water filter is a great thing to own), dried & canned foods, and a cooking option that doesn't rely on electricity. What you should not do is spend a bunch of money on the most expensive items in the grocery store, which won't last if you lose power for more than a few hours. Taking a beat to figure out what will actually serve you best will save money and actually work a lot better.

Similarly, if you want to prepare for a rough time in the stock market, choose a strategy that incorporates both good & bad years into the return assumptions, has a risk/reward profile that will let you stay invested for many, many years (even if it's not optimized at all times), and keep plenty of cash on the sidelines (and maybe some silver, if that makes you feel good). What you should not do is change strategies, switch investments, or turn everything into cash when things feel precarious. Remember that staying invested for a really long time is the best thing you can do, so finding a strategy you can stick with for years & decades – even if it isn't totally optimized at all times – is a smart move.

I'd love your feedback! Send me a message to let me know what you think. Thanks!

Thanks,

Timothy Iseler, CFP®

Founder & Lead Advisor

Iseler Financial, LLC | Durham NC | (919) 666-7604

Iseler Financial helps creative professionals remove stress while taking control of their financial lives. We'll help identify current your strengths and weaknesses, clarify and refine your long-term goals, and prioritize decisions to improve your financial well-being now and later. Reach out today to take the first step.