A new normal?
That’s what American investors can expect now that the housing market has collapsed, the financial markets are back to November 2008 lows, and people are losing their jobs in droves.
The numbers tell the story. Americans have been hit with a perfect-storm of bad financial news, including:
- An $8 trillion negative wealth effect from declining home values.
- A $10 trillion negative wealth effect from weakened capital markets.
- A $14 trillion consumer debt load amid “exploding unemployment,“ leading to “exploding bankruptcies.“
Mind you, that doesn’t necessarily mean we’ll all be churning our own butter. It looks like we’re transitioning, if painfully so, from a debt-fueled economy to a savings-based one—just like our grandparents did.
In other words, we’re experiencing change—actually “imposed change”—and as investors, we need to learn how to deal with this change.
The Psychology of Imposed Change
On Wall Street, change is a constant, whether we want it or not. So when change invariably arrives on our doorstep, we need to know what kind of change it is, so we can adjust accordingly.
Imposed change is almost a powerless change—there’s not too much we can do about it. Stock markets wane, companies lay off workers, and housing values plummet—it’s mainly out of our control. What is in our control is the power to deal with imposed change. If we give ourselves some options, strive to be flexible, and commit ourseves to defying the status quo, imposed change needn’t be an obstacle for investors. In investment terms, that translates into expanding our investment horizons, perhaps to absolute return styles where better opportunities may lie, or to switch our allocations to include other precieved safer havens, like high dividend stocks, or fixed income strategies.
Currently in our economy and in the financial markets, we are undergoing a heavy dose of imposed change. Consequently, it’s important to remember that for us, it’s change that’s:
- Out of our control.
- Seems sudden—change that is not known until it’s made real, despite rumors that change is imminent.
- Creates problems—requiring us to make changes in life style practices, family and friend relationships and possibly triggering anxiety about the future.
- Disrupts routines—this type of change is disorienting and confusing, and makes all of us question our comfort zones, as in the way we learned to enjoy our retirement, or the way we plan for our future.
The primary emotional impact of massive change imposed on us is usually a deep feeling of loss. Again, that translates into internal feelings that easily transcend dollars and cents. Sure, it’s tough to see that our investment plans have declined by 10-20-30-40 percent or more. But in real world terms of “loss,” that means rethinking our retirement, or at what point we might arrive there.
Right now, when so much is uncertain financially for us, the impact of change is even more intense. We may feel even more hopeless and powerless, worried that we can’t count on anything and overwhelmed by the need to adapt to new demands.
The good news (and there is good news) is that we can deal with imposed change.
After studying how people cope with loss, I learned that there is a Cycle of Grief—the emotional stages we may go through when experiencing loss. If you’re familiar with these, we can formulate ways to minimize the emotional impact in the way we greet, process, and manage change with our money and finances, too.
Stages of the Cycle of Grief
Crisis begins the cycle. It descends emotionally through these stages:
- Relief—Uncertainty is removed
- Shock—I’m feeling immobilized
- Denial—None of this is really going to happen
- Anger—This is not what I signed up for!
- Bargaining—If I change by 30%, things will get better
- Guilt—The irrational belief you were the cause of the original problems
- Panic—Anxiety attacks, psychosomatic symptoms
- Depression—Low energy, inability to concentrate and innovate
- Resignation—I’ll just keep going
- Acceptance—Okay, I get it, this is the way it is and maybe things will improve
- Building—I see some ways I can get involved again
- Opportunity—There are some possibilities here that I can make happen
The cycle descends emotionally until it hits bottom at depression (as in the realization that our retirement savings have lost enough money that we’re going to have to readjust our lifestyle expectations). There, it tends to plateau and start turning around and moving in an upward direction to reach acceptance. After getting used to acceptance, people generally start coping in a more positive way, and the cycle moves upward until people can begin to find opportunity in the changes they’ve come to accept.
For example, hard economic times force, or impose on us, to change our money habits. We begin scrutinizing every expense and scaling back on our household budgets. We cut debt or spend less and make do with less. That’s the kind of change I can get behind.
In managing our finances, coping with impose change is all about coming to grips with loss and then assessing and leveraging the changing landscape to make change work for us. That, in turn makes us the “change agent” and gives us control over our own financial destiny.
WrapManager is aware that this maybe more than just a cyclical change. It may be a fundamental change in the way the investment world works. WrapManager with our belief in the power of diversity is identifying what we believe some of our future allocations should adopt.
From powerlessness to control—it’s a daunting journey, but the right path to take in an era of massive imposed change.
Note: A special thanks to Nikki Cohn Tureen from Working Dynamics. Mrs. Tureen has been my business coach for over ten years and has helped me with this article. If you are interested in contacting Mrs. Tureen her email is
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