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Be like a zebra and don’t be overstressed with the stock market
The stock market can be stressful. Right? Yep, and it’s especially so now with many investors waking up each morning pondering whether we are on the cusp of another crash, just like the one in 2008.
Our own S&P/ASX 200 index is down over 17% since the April 2015 high where we nearly took out the 6000-level, so if we lose another 3%, we will be in bear market territory! That should make a lot of people worry, be stressed and, unlike a zebra, it could all be very bad for you!
Calm as a zebra
My interest in stress and zebras was created by a story in the AFR 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, zebras get scared and worried temporarily when, say, a lion is chasing him, but once he beats his rival, he lets it go. If he loses the race, he’s not around to worry, but importantly if he wins, he gets over the stress that there are bastard lions out there.
Life is not a box of chocolates
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 one is a beautiful nutty experience — some will be artificial cherry and other distasteful creations of chocolatiers!
Positives and negatives of stress
Sapolsky says it is how we respond to the negatives of life, that determines the harm it can impose on us. So what we really are 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 were 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!
Stock market overview
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, and it’s the one that makes me live comfortably with all of the stupidity that stock markets and all of 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 if you had invested in Aussie shares you $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 of 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 will do very well over time.
The lesson
The lesson is not to get stressed about these times now when we are being chased by money-hungry short-sellers and hedge fund managers, who are akin to lions.
Sure you have to arrange you finances so you can rest peacefully once the ‘chase’ is over but I guess if you make sure you are always faster than the ‘lions’ out there you can really KO stress totally.
Try these
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 are young opt for the higher risk option in super but after 50 go to a balanced option
If you say have a million dollar in super, which returns around 7% a year, you would 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, so you can keep living on $70,000 in years like the past two, where returns have been pretty average, if you were heavily in stocks.
Crashes and corrections happen
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 are seeing right now.
I must admit I never realised how at one I am with zebras but I do like the idea of it.
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
