How many times has a client asked your opinion on the future? “I know you don’t have a crystal ball, but…” How have you addressed that question? In the past, many financial advisors share what they think is going to happen. I did the same. Eventually, I changed the conversation by saying I have no idea what’s going to happen in the future. Doing this helps clients stay calm, follow advice, and make informed decisions.
Here’s how I address the crystal ball question. Neither the smartest people in the world nor the best computer programs can predict what the markets will do over the next six to twelve months. So I don’t spend much time trying to figure it out. But I can offer observations on what’s going on right now. Describing what’s next, at best, is a guess. Explaining what’s happening now is more concrete and easier for people to grasp. The future is uncertain, and this is why many people are struggling right now.
The uncertainty of not knowing is often more stressful than knowing something terrible is going to happen. Consider a 2016 study published in Psychology Today. People sat at a computer and instructed to turn over digital rocks that might have snakes underneath them. If a snake appeared, the people received a mild but painful electric shock.
As the game progressed, people learned to avoid rocks that probably hid a snake. But the researchers would trick them once the people felt confident or sure a rock was not hiding a snake. One moment they were certain there was no snake behind a rock. They clicked on it, a snake appeared, and zap! With their confidence shattered, stress increased significantly. More importantly, the potential of an electric shock was more stressful than knowing for sure they were going to receive a shock. Why is this?
If I know the shock is coming, I can deal with it. I’ve been shocked before. But not knowing whether an electric shock is about to happen, or what the shock will feel like is even worse. It’s the uncertainty that magnifies the stress.
Is there a snake behind the rock? Am I going to get shocked? The answers are uncertain, just like the future. Investors keep asking questions where the answers are unknown. When will the bear market end? Will the markets continue declining? What if I lose all of my money? What if the virus is incurable? What if the “shock” is catastrophic? Trying to answer questions that lack definite answers may do more harm than good.
That’s why we need to change the conversation. Yes, tomorrow is uncertain. No, I have no idea how this will play out. But right now, here is how I see it. The smartest people in the world are attacking the virus. They are researching vaccines, developing new testing techniques, and exploring ways to get back to work.
Throughout history, people have faced adversity. And throughout history, people have figured it out. The virus affects the entire world, which is why the smartest people and most successful companies are working on solutions. I don’t know how long it will take or how it will all play out. It’s the virus against the people of the world.
And my money is on us.