You’ve probably heard of the ‘fight or flight’ response, which was first described in the 1920s by physiologist, Walter Cannon. It’s an inbuilt physiological response. When we feel stressed or threatened, we are instinctively triggered to either deal with it (attack) or avoid it (run away).
When you are facing perceived danger, a rush of hormones activates your sympathetic nervous system. This stimulates the adrenal glands to release catecholamines, which include adrenaline and noradrenaline. You experience increased heart rate, blood pressure and breathing rate, so you are primed and ready to fight or flee. When the threat has gone, it takes 20 to 60 minutes for the body to return to pre-arousal levels.
The benefit of this response is that it enables people to perform well under pressure. Also, it’s critical to our survival. For example, if the fire alarm goes off in your building it’s a good idea to escape.
The disadvantage is that ‘fight or flight’ kicks in whether the threat you are facing is real or imaginary.
You might be wondering what all this has to do with financial planning…
With Covid-19 causing such a big dip in the markets in March, you might have imagined your money was disappearing and experienced a quite natural stress response. You might have wanted to punch your financial adviser when we insisted you do nothing. Or you might have felt inclined to ‘run’ i.e. move your investments out of the markets.
If you held your nerve, you’ll be relieved to know it looks as though the bounce-back we reported last month is continuing.
Global equities have done better than UK equities, so it’s important to stay diversified across the world and across asset classes. By thinking long-term and sticking with the plan, you have no need to panic.
As always, we recommend you ignore the news, keep calm, and carry on.
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