Skeels Cygan: How investing decisions can impact your emotions

On April 3 and April 4, the S&P 500 index declined by more than 10%. Since then, the stock market has had huge swings, often feeling like a roller coaster.

What emotions are you feeling? Investors experience many emotions, and I believe it is worthwhile to acknowledge which emotions are affecting your day-to-day mood, your investment behavior and your outlook on the U.S. economy.

Are you feeling nervous about the impact of tariffs imposed by the Trump administration, or the capitulations in the U.S. bond market, which seems to indicate that other countries are losing trust in the U.S. as a safe haven for treasury bonds? Are you angry, frightened for your future or frustrated by the uncertainty? Or are you confident knowing that the stock market has performed well over the long term and investors should expect short-term volatility?

Lately, experts have been using the words “unsettled, irrational and self-inflicted” when writing about our economy. There is an overabundance of angst and division among Americans.

Investors don’t like roller coasters — and they don’t like losses. Everyone prefers a nice, steady increase in the stock market.

The late Nobel laureate Daniel Kahneman explained the concept of loss aversion in his book “Thinking Fast and Slow.” Through his research, he showed us that humans often behave far less rationally than we think we do.

Investors also tend to have short memories. The last year the stock market had a poor return was 2022, and, during 2023 and 2024, the S&P 500 increased over 20% each year. Most investors have forgotten that the S&P 500 declined 54% between October 2007 and March 2009. Mark Twain was credited as saying, “History doesn’t repeat itself, but it often rhymes.”

What should you do when the stock market takes a downturn?

1. Accept that you cannot control the market. As individual investors, we do not have control over the day-to-day swings in the stock or bond market.

2. Focus on what you can control, including:

• Your savings rate and spending, and whether you are living within your means.
• Your asset allocation within your investment accounts. If you have not rebalanced your accounts in a few years, they are likely heavy in equities (due to the strong equity returns in 2023 and 2024).
• Your lifestyle and how much exercise you are getting and whether you are eating nutritious meals.
• Your emergency fund. Have enough cash to carry you for at least six months.
• Your education and career, to some extent.

3. Consider simplifying your investments.

• Now that your retirement plan and investment accounts have likely recently declined in value, consider if there are some assets you can sell. In a taxable account, there may be opportunities for doing some “tax loss harvesting,” which involves selling an asset at a loss. The tax loss can help reduce your taxes for 2025. (Note that this only pertains to taxable accounts. Search online for “tax loss harvesting” to find more details, or contact your financial advisor, broker or brokerage firm.)
• Research the recent performance of mutual funds or exchange-traded funds, or ETFs, you own in your accounts. Brokerage firms often provide free research online, as does Morningstar.com. Find out what expense ratio you are paying for each mutual fund. Consider replacing high-cost actively managed funds with low-cost index funds to simplify your investments.
• If you have more than one traditional IRA, Roth IRA or taxable investment account, consider combining them whenever possible. If you have old 401(k) accounts from prior employers, roll them into a traditional IRA. Likewise, if you have multiple accounts at banks or credit unions, consider combining them to simplify your finances going forward. If you are considering a Roth conversion in 2025, doing it when the markets are down (and your traditional IRA account balance is low) is often a wise strategy. This is because the amount you convert is taxable as income in the year you convert, but if your account balance in the traditional IRA is lower than before, you will pay taxes on a lower amount.
• If you do not have automatic savings working for you, set it up with your employer so a fixed percentage of your paycheck will be swept into your retirement account. You can also fund a Roth IRA or taxable account this way by having your bank or credit union send a fixed amount to your investment account at your brokerage firm each month.

4. Ignore the “noise” in the investment markets.

• Volunteer in your community or donate to a charity.
• Plant a garden.
• Talk with your kids or grandkids about your experiences with money throughout your lifetime. Tell them about your parents and grandparents and the hardships they endured.
• Plan a trip to the zoo or botanical garden, or go for a hike.
• Research a day trip for the summer.
• Go to a farmer’s market. Cook a nice dinner. Try a new recipe. Invite the neighbors over.

Rather than focusing on the daily ups and downs of the stock market — which we cannot control — remember that over the past 30 years, the U.S. stock market (the S&P 500) has returned slightly over 10% per year. A portfolio that is 50% equities and 50% fixed income has averaged roughly 7% per year over the past 30 years.

We can be optimistic that the current turmoil will end and our investments will be fine. Of course, there are no guarantees.

Finally, we can remind ourselves that many things are far more important than money.