Investor Psychology

A Psychologist's Fear-Fighting Tips for Investors

To make good financial decisions, you need a clear head, and fear can get in the way. Instead, beat your fears with these behavioral strategies.

As a psychologist and Chief Behavioral Officer, I’ve listened to and counseled some of the best financial professionals in the country over the last few weeks. You see, my job is to teach advisers how to control excessive emotionality en route to making optimal financial decisions. As I spoke with these advisers, one theme has emerged: fear. Health-related fears. Financial fears. Fears about the future of our country. Fears about the uncertainty shrouding the world.

There’s no shame in being scared, but fear becomes problematic when it paralyzes us or stands in our way. Even just thinking about something positive activates our internal reward system, which leads to increased risk-taking, increased impulsivity, and greater general physical arousal. Fear, understandably has the opposite effect, making us timid, protective and risk-averse. Both positive and negative emotions, if taken to their extremes, can hamper sound financial decision-making, but since fear seems to be the predominant emotion du jour, it’s worth examining some of our most common fears around money:

  • Fear of missing out: Anxiety around not being a part of market upswings can lead to excessive risk-taking.
  • Fear of volatility: Discomfort with the ups and downs inherent in capital markets can lead to excessive conservatism.
  • Fear of uncertainty: Not knowing what will happen next leads to two common behaviors — compensatory overconfidence or assuming the worst — neither of which leads to great financial choices.

To help us all overcome fears that could hold us back financially, please consider the following tips:

Learn from your fears

Realize that some amount of fear and stress is beneficial. Fear, in moderate doses, can instruct us to better prepare for an uncertain future. For example, an appropriate fear of death or disability might lead someone to protect their assets with insurance. The fear that a single company or country might underperform might rightly lead someone to diversify their assets.

Fear isn’t all bad, and we must first ask ourselves if there is something this fear can be teaching us.

Face them

The paradox of fear is that to overcome one you must confront it. Avoiding fearful conversations or feelings can give them more power than they actually have, which is why 90% of those with specific phobias are cured by facing their fears. The irony of procrastinating or avoiding a financial reality is that it only gives it greater power.

So, open those bills, pay that credit card statement, and even make the phone call asking for leniency if you find yourself in a tough situation. Action has the effect of reducing anxiety incrementally, while inaction only feeds those fears.

Fake it

There’s good science to the adage, “Fake it till you make it.” We typically assume our behaviors are a result of our thoughts, but research has shown actions drive feelings as much as feelings drive action. Now is the perfect time to exercise, get dressed, take a shower, and go about your normal routine, no matter how difficult it may feel.

As for your finances, investing in risk assets and setting aside money for a rainy day may be the last thing on your mind as you try to navigate the realities of our new every day. But I can promise you the sooner you can begin acting as you know you should, the more natural it will become.

Make it meaningful

A crisis tends to bring out both the best and worst in human nature. Just as surely as there is fear, there are more opportunities for service than ever before. Making hardship meaningful is a time-tested way to transform suffering into something more palatable.

Support a local restaurant, buy groceries for a neighbor, or write a letter to the medical professionals on the front lines. All of these acts will have the effect of turning fear on its head.

Connect with others

Oxytocin, a chemical released when we connect with those we love, has been shown to reduce fear. Social distancing may have changed the way we connect, but it is more important than ever to maintain strong relational ties. Find creative ways to connect with those you love, like via video chat, letters or a quick phone call. Raising your spirits by staying connected pays benefits in many ways.

By connecting with others and reducing your stress, you will keep yourself in a centered place where you are better able to make rational choices about your health and your wealth.

Take care of yourself

The connection between body and mind is powerful and underappreciated. Excessive caffeine or alcohol consumption can amplify fear responses — not a good thing when it comes to making financial decisions — whereas exercise and adequate sleep tamp down stressful reactions. Your mind will only be as calm as your body allows.

In these frightening times, mental health care is every bit as important as washing your hands and maintaining appropriate social distance. And being in the right frame of mind is important for everyone as we move through the economic ups and downs of the coronavirus pandemic.

I hope the tips above will help you manage whatever comes next.

About the Author

Daniel Crosby, Doctor of Psychology

Chief Behavioral Officer, Brinker Capital, Brinker Capital

Educated at Brigham Young and Emory Universities, Dr. Daniel Crosby is a psychologist and behavioral finance expert who helps organizations understand the intersection of mind and markets. Dr. Crosby's first book, "Personal Benchmark: Integrating Behavioral Finance and Investment Management," was a "New York Times" bestseller. His second book, "The Laws of Wealth," was named the best investment book of 2017 by the Axiom Business Book Awards and has been translated into five languages.

Most Popular

Dying Careers You May Want to Steer Clear Of

Dying Careers You May Want to Steer Clear Of

It’s tough to change, but your job could depend on it. Be flexible in your career goals – and talk with your kids about their own aspirations, because…
September 13, 2021
5 Top Dividend Aristocrats to Beef Up Your Portfolio
dividend stocks

5 Top Dividend Aristocrats to Beef Up Your Portfolio

The 65-member Dividend Aristocrats are among the market's best sources of reliable, predictable income. But these five stand out as truly elite.
September 14, 2021
7 Best Commodity Stocks to Play the Coming Boom

7 Best Commodity Stocks to Play the Coming Boom

These seven commodity stocks are poised to take advantage of a unique confluence of events. Just mind the volatility.
September 8, 2021


Tax Changes and Key Amounts for the 2021 Tax Year
tax law

Tax Changes and Key Amounts for the 2021 Tax Year

Americans are facing a long list of tax changes for the 2021 tax year. Smart taxpayers will start planning for them now.
September 23, 2021
Namaste Invested: Look to Yoga to Build Your Wealth
Investor Psychology

Namaste Invested: Look to Yoga to Build Your Wealth

It’s uncanny how the principles of yoga apply to financial success. Here are five elements of yoga that are particularly useful for personal wealth.
September 23, 2021
ETFs and Mutual Funds with Todd Rosenbluth
Index Funds

ETFs and Mutual Funds with Todd Rosenbluth

Which is better: ETFs or mutual funds? And how do you decide where to put your investments? CFRA fund expert Todd Rosenbluth has some answers. Also, h…
September 22, 2021
These 2 Emotional Biases Could Kill Your Retirement
Investor Psychology

These 2 Emotional Biases Could Kill Your Retirement

Are your emotions sabotaging your retirement plans? Some basic knowledge and careful introspection can go a long way toward avoiding major pitfalls.
September 20, 2021