In this week’s episode, we discuss the latest market news including the expected outcomes of the upcoming Fed meeting. And, since May is Mental Health Awareness Month, and concerns about recession, inflation, rising interest rates, etc. continue to dominate the news, we talk about the impact of stress on people’s financial decisions and how to avoid being sidetracked from your financial goals by these fears.

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Stress & Financial Decision Making – 5/2/2023 | Fidelity Investments

Stress is an inevitable part of life, and it affects us in various ways. One area where stress can significantly impact our lives is in making financial decisions. This is a topic of great importance as financial decisions have far-reaching consequences on our financial well-being. In this article, we will explore the relationship between stress and financial decision-making and how it can impact our choices.

Financial decision-making involves a process of weighing various options and considering their potential outcomes. In times of stress, our cognitive abilities may become impaired, leading to poor decision-making. Research has shown that stress can negatively affect our ability to think clearly and make rational choices. When faced with financial decisions, stress can lead to impulsive actions, irrational thinking, and a lack of focus or attention to detail.

One way stress affects financial decision-making is by clouding our judgment. When under stress, our brains release cortisol, a hormone that influences decision-making. High levels of cortisol can lead to increased risk-taking behavior, making us more inclined to take chances with our money. This can manifest in impulsive buying, investing in risky ventures, or neglecting important financial responsibilities.

Stress can also impact our long-term financial goals. When stressed, we may become myopic and focus solely on short-term solutions rather than considering the bigger picture. This can lead to poor financial planning and an inability to set and achieve long-term financial goals. We may be more likely to prioritize immediate gratification over long-term financial stability, which can have serious consequences for our future.

Moreover, stress can also affect our ability to seek and process information effectively. Financial decisions often require conducting extensive research and analyzing complex data. When stressed, we may struggle to gather and process information efficiently, leading to incomplete or inaccurate decision-making. This can result in missing out on valuable investment opportunities or making uninformed choices that could harm our financial well-being.

Recognizing the impact of stress on financial decision-making is crucial in ensuring sound financial outcomes. To mitigate the negative effects of stress, it is essential to adopt strategies that promote emotional well-being and rational decision-making. Here are a few tips to help manage stress and improve financial decision-making:

1. Practice stress management techniques: Engage in activities that reduce stress levels, such as exercise, meditation, or spending time in nature. These activities can help calm the mind and improve cognitive function.

2. Take time to evaluate decisions: Avoid making impulsive decisions when feeling stressed. Step back, take a breath, and give yourself time to evaluate the pros and cons of each option before making a choice.

3. Seek professional advice: Consult a financial advisor who can provide objective guidance and help navigate complex financial decisions. They can offer valuable insights and assist in creating a well-structured financial plan.

4. Automate financial processes: Automating bill payments, savings, and investments can help alleviate stress and ensure that financial responsibilities are taken care of consistently. This can also provide peace of mind, knowing that important financial tasks are being handled.

5. Build a support network: Surround yourself with individuals who understand and support your financial goals. Discussing financial concerns with trusted friends or family members can provide a sense of relief and different perspectives on decisions.

By recognizing the impact of stress on financial decision-making and implementing strategies to manage stress effectively, we can make informed and rational choices that support our long-term financial well-being. Fidelity Investments understands the challenges individuals face in making financial decisions and provides resources and support to help navigate these decisions successfully.