Financial Stress: Investors Experience Emotional Fallout

Aug. 10, 2011— -- The stock market cliff dive that began three weeks ago and reached a crescendo Monday has crushed the spirits of some investors who had been crawling back from the 2008 financial crisis.

Many psychologists say they are now trying to cope with the emotional fallout from some people who thought they were recovering from their own financial downturn.

"I liken this as the acute phase of natural disaster," said Joshua Klapow, clinical psychologist at the University of Alabama in Birmingham. "And at its core, it's psychological. Not financial."

The Dow fell more than 600 points Monday, its biggest point loss in a single day since Dec. 1, 2008 and its sixth biggest point drop ever. While gains on Tuesday were a step in the right direction, some experts say investor sentiment may take longer to turn.

Unlike the height of the recession, where the steady worsening eased some people into an emotional lull, the market's volatile drop and influx can bring about a vicious cycle of anxiety-induced impulsive behavior, Klapow said.

"You're seeing people who may not make the soundest financial decisions just so they can do something to manage their emotions," said Klapow. "We don't know what's going to happen right now."

Many seem to be equipped with a financial game plan during stable but bad times, said Klapow. But instability strips people's sense of control, he said.

"Lack of control is one of the most anxiety-provoking situations," said Klapow. "One could liken it to being diagnosed with an illness with an unknown prognosis."

The physical symptoms of financial stress and anxiety are much like that of general anxiety, and can include constant worrying, chest tightness, and nausea.

"The stimulus that's causing the anxiety is different because finances are tied to so many things," said Klapow.

For many, finances are tied to their standard of living and their quality of life; everything from their spending habits to how they use their free time.

Psychology experts say that it's a person's perception of how much control they have over their finances, not the amount of money invested into the stock market, which drives his or her level of anxiety.

The perception that a sudden loss could be life-changing -- no matter how many dollars they started with -- could trigger more intense feelings of anxiety.

Kathleen Gurney, president of Financial Psychology Corporation, has researched people's feelings about money for more than two decades. She says certain personality types are more resilient during sharp downturns while others are certain to experience distress.

In a 28-question assessment Gurney worked to develop over eight years, Gurney carved out nine possible individual financial profiles.

Only two of the nine--the entrepreneurs and the high rollers --can naturally stomach the risk, she said. The rest of us learn how to cope.

"Most of us would rather avoid risk," said Gurney. "We don't have a high level of tolerance."

Instead, many suffer from what Gurney once read in an editorial as "get-me-out syndrome," where a person's emotions take control and he or she pulls too quickly out of the market.

"What you don't want to do is fall back on the get-me-out syndrome and catch the get-me-smart syndrome," she said. "You want to manage your stress now before you have a knee-jerk reaction."