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Talk of the possibility of a recession is ramping up and with excitement.
Although a recession is not a foregone conclusion, some experts have recently raised the possibility of a recession in the near term. Citigroup, assessing global economic growth over the next 18 months, sees a 50% chance of a global recession, while Goldman Sachs put the chances of a US recession next year at 30%.
others, like UBS, not sure what is happening. In any case, the mere possibility of a recession is enough to cause alarm.
“When we talk about anxiety, we talk about uncertainty,” said licensed psychotherapist Bea Arthur, CEO of The Difference, which provides on-demand teletherapy for businesses and communities.
“We cannot see how severe the recession will be or when it will come,” she added.
The American Psychological Association’s official definition of anxiety is “an emotion characterized by feelings of tension, anxious thoughts, and physical changes such as increased blood pressure.”
These emotions can have a direct impact on your financial life. Those who feel anxious or stressed are more likely to engage in expensive financial behaviors, including borrowing from expensive financial firms and withdrawing cash from retirement accounts, according to report from the Financial Industry Regulatory Authority’s Investor Education Fund and the Global Center for Financial Literacy.
Here are five ways to deal with anxiety before it takes a toll on your mental and financial health, according to psychologists.
Pay less attention to macroeconomic news and focus more on your specific situation, says a financial psychologist and certified financial planner Brad Klontz.
“It will take about 75% of your stress out,” he said.
When you read recession-related news or other economic reports, watch them, but don’t absorb them, Arthur said. After all, the human brain is designed to care only about those close to us, she noted.
“We’re being asked to expand and allow so many crises, so many stressors to enter our energy field, we have to step back,” she said. “We must restore our power.”
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Because anxiety is actually related to uncertainty about future events, talking to a financial advisor can ease your mind, said Klontz, associate professor of financial psychology and behavioral finance at Creighton University’s Hyder College.
Northwestern Mutual’s 2022 Planning and Progress Study confirms this. About 54% of American adults said they are somewhat or very worried about their finances, according to a Feb. 8-17 Harris Poll of nearly 2,500 people.
However, that percentage drops to 46% for people who work with a financial advisor and to 47% for those who consider themselves disciplined planners.
This is Klontz’s favorite exercise that walks you through what will happen in response to a series of events.
Talk about your fears, for example, “I’m worried about the recession,” and then ask yourself, “What will happen then?” Keep going, so if the answer to the first question was “I might lose my job,” ask yourself, “What then?” Continue to run all scripts from there, Klontz said.
“At worst, exercise is like jumping off an emotional cliff,” he said. “When you look at the scenarios, it’s not life-threatening and it’s not as bad as they fear.”
On the other hand, stress can cause real damage.
“Financial stress can kill you, but our financial situation is rarely life-threatening,” Klontz said.
It may sound cliché, but according to Klontz, taking a moment to pause and take a few deep breaths can really help.
“When we’re emotionally overwhelmed, we have rational problems,” he explained. “The key is to calm your emotional brain before making any decisions.”
This can prevent you from making bad financial decisions, such as panic selling stocks when the market is falling.
When the market sells off and the weekly chart looks like it’s fallen off a cliff, that’s a narrow frame of reference, Klontz said. However, as a long-term investor, you need an expanded frame of reference. If you do that, the rock will actually look more like a pothole, he explained.
“Stretch it out 10 years, 15 years,” Klontz said. “It’s a steady uphill climb, with a couple of bumps along the way.”
Also remember that people usually invest in more than one asset class, so if you see the market drop, know that your diversified portfolio may not go down as deep.
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Disclosure: NBCUniversal and Comcast Ventures are investors in the Acorns.