Managing Your Money – and Your Stress

Psychology Today – You don’t have to be an anxious investor. Tips from a psychiatrist and financial advisor. By: John W. Schott, Jean S. Jean S. FOR MANY OF US, charting our financial future is fraught with fear,insecurity, impulsivity–feelings that can capsize a savings or retirement plan, or even discourage us from investing in the first place.


INVESTING IS A SIMPLE MATTER: buy good stocks and hold on to them, and time will make you rich. This is the most common bit of advice given to beginning investors. But if it’s true that investing is so simple, then why do people wind up losing money on stocks, view the market as a major gamble, or feel too intimidated to invest in the first place? Because every emotional drive associated with money gets played out in investing: the longing for security, the guilt engendered by greed, the quest for power and self-esteem, the fear of being abandoned, the search for love, the dream of omnipotence. And when these constellations of emotions intersect with the churning, manic-depressive mood gyrations of the market itself, the result can be financially dangerous.

In recent years, more people have jumped into the stock market than at any other period in history. Eighty-seven percent of the money ever invested in the U.S. stock market has come in since late 1990. Company-sponsored pension plans have been rapidly replaced by 101(k) plans, IRAs, and other self-directed arrangements. We have entered the age of financial autonomy, an exciting period, but one fraught with anxiety as well as promise.

In order to become more confident in this environment, ordinary investors must be self-aware as well as self-directed. And we need to recognize that the emotions mentioned above can cause us trouble. Fortunately, there is a host of things we can do to distance ourselves from counterproductive feelings when making investment decisions. When we know that we are able to control our own self-defeating behaviors, we approach the market with a sense of comfort–and we increase our success.


Many people find the stock market a scary place; they search for certainty–which doesn’t exist–and they are averse to any risk. Yet they know that over time, investing is the best way to make money. Often, certainty-seeking investors have experienced losses or trauma early in life, or suffered recent losses, such as the unexpected death of a spouse. They want to avoid loss now, since they have already experienced so much pain. But these investors may be unaware of the other side of the picture. If you invest in quality stocks, losses take on less significance in the long term because they are greatly outnumbered by gains.

To deal with this aversion to risk, an investor needs to remember that it is not necessary to be infallible in order to succeed in the market. The famous I child psychiatrist D. W. Winnicott, M.D., coined the phrase “the good enough mother,” meaning a mother who is capable and caring but does not have to be perfect in order to raise a child successfully. There is also the “good enough investor,” who is generally competent but not in need of total safety, because he or she isn’t always looking to be perfect or to “beat out” everyone else’s results.

Instead of thinking “safety,” certainty-seeking investors need to think about “spreading out the risk”–investing in a variety of stocks, funds, or bonds, so that if any single investment does poorly, the rest of the portfolio will shoulder the burden of financial growth. It is also important for these investors to learn to act as independently as possible.

Many risk-averse investors think they need a great deal of hand-holding from their broker or investment adviser, and even their friends. While this helps up to a point, it is best for certainty-seekers to make the basic choices for their stock portfolio independently, in order to foster independence and to convince themselves that their choices are “good enough.”

Extremely risk-averse investors are often advised to put their money mainly in U.S. Treasury bonds, the safest of bonds. But a totally risk-averse route can freeze you forever into an overly-cautious attitude that will prevent investment success. It’s fine to start out with all of your assets in Treasury bonds, if you work toward having 40 to 60 percent in bonds and the rest in stocks.


Some people are avid and hardworking investors, yet they make themselves miserable because they are always anxious. They worry when their stocks and mutual funds go up, they castigate themselves when stocks go down, and they feel that every market decision they make has to be the “right” one. But worrying can sink a stock portfolio; its obsessive nature can cause investors to sell when it is against their best financial interest.

A worrier needs to develop a system that involves making major decisions once, and only minor adjustments from then on–a system that will minimize investment anxiety. The best way to do this is to create a written plan for each investment that relies heavily on “stop/loss” orders–orders to sell if the price drops below a certain level. Using stop/losses is important because of the worrier’s impulse to sell irrationally when the stock goes up and to hold on irrationally when it goes down (in the hope that it will rebound dramatically). The plan involves writing down the reason for purchasing each stock, the stop/loss levels, and then entering them with a broker. The plan takes decisionmaking out of the person’s hands and worry is curtailed. Similarly, write down what you expect your mutual funds to achieve. Evaluate the funds every three months–but no more than that

Another way to reduce anxiety about investing is not to listen to too much market information. Limiting market reading, television viewing, and stock-table consulting can help. And stay away from TV programs where panels of Wall Street experts offer opposing opinions; the divergence of opinion can produce further anxiety.

Finally, it’s important to let the pleasure in. Investing is meant to be an emotionally as well as financially rewarding experience. Once worry is contained, it can lead to the winning financial results that a conscientious investor deserves.


Impulsive investors tend to buy a stock because they have an intuition about it. They are particularly attracted to companies that appear glamorous or are in the news. The danger of this “love at first sight” approach to stock picking is that one can fall out of love just as quickly, and sell in a way that is certain to lose money.

An impulsive investor must allow for a period of investigation and reflection before acting on feelings. The rule is that you can fall in love at first sight–but you can’t buy at first sight, ever. Information to help you investigate companies is readily available. Many libraries carry the Value Line Investment Survey, a weekly report which ranks stocks and comments on them from a business point of view. Additional information can be obtained by getting a company’s annual report.

After doing this research, if the investor still wants to invest in a company, he or she should write down expectations for its performance over the next year and his or her standards for selling. Reviewing those standards every month or so will counter feelings that can lead to a decision to sell precipitously if the stock declines temporarily or doesn’t produce positive results quickly.

A money manager can be extremely helpful to an impulsive investor, provided that the relationship is kept objective, and that the investor does not idealize the manager as a financial Prince or Princess Charming. A money manager can help such an investor set up and stick to a long-range investing plan and keep him or her on track–and off impulse.



If power is important to people in their careers and personal relationships, it will take center stage in their investing life as well. Because of their high energy levels and lack of fear, these people often do well in a strong market. But in a market decline, they suffer disproportionately because their investment choices tend to be heavily weighted toward speculative and overvalued stocks. Their emotional suffering is disproportionate, too, because they lose self-esteem as their stocks fall.

The greater our quest for self-esteem, the more likely we are to become power investors. Even though we may be successful, likable, and seemingly self-confident, bubbling beneath the surface there can still be issues of esteem that make us vulnerable.

There are several things a person can do to counter this vulnerability. The first is to make sure the stock market does not become the main area for building self-esteem. Reinforcement should instead come from family, work, friendships, and community ties. Second, the power investor should develop a balanced portfolio. This means limiting speculation and choosing stocks of companies that have products on the market–and thus, a record of profits, earnings, and rate of growth.

Like the impulsive investor, the power investor must also make it a rule to investigate a stock as thoroughly as possible and hold off at least 24 hours before buying it–even when a broker is putting on pressure to buy now. This allows for time to stand back, investigate, and gain some emotional distance from the stock.

After buying a stock, it’s critical to evaluate it periodically to see whether it still meets the expectations set at the time of purchase. Power investors tend to resist this process because judging stocks seems like self-judging. This is when the investor must remind him or herself that he or she has invested in businesses, and the value of a portfolio will depend on the businesses’ success. The essence of investing is using money rationally to ensure or increase our physical comfort, rather than to promote self-esteem. If we think of investing in this way, power issues shrink. In the financial market, the less powerful we try to be, the more successful we can truly become.



Relishing the thrills of “playing” the market, but seeing too many stock trades go sour; believing that things will turn around after that one good trade; hiding losses from loved ones–these are all characteristics of the market gambler.

Gamblers are looking to be loved by fate. “If I can magically make a trade come through, it demonstrates that I am the favored one,” they think. Fate takes on the guise of a parent: indulgent when the gambler wins, punishing when the gambler loses.

Gambling is a serious matter because it inevitably grows more intense and can become an addiction. The gambler operates on hunches, and bets that certain outcomes will occur within a specific time frame. But even in favorable markets, gamblers often lose because they take extreme risks and don’t cover those risks sufficiently. I’ve never known a market gambler who came out ahead in the long run, although many can remember some great trades.

Gamblers need to learn how to steer a more emotionally balanced course in the market. Thrill-seeking, their emotional objective, must be eliminated entirely, not simply reduced. First, a gambler must convert his or her trading account (an account with a broker that allows the investor to buy and sell options on stocks in very short periods of time) into a true investment account. The more transactions a person makes, the more a broker cams, so sometimes a broker will encourage such a client to keep on trading. If that’s the case, the solution is to get another broker who can focus on more long-range investments.

The gambler should construct a portfolio in such a way as to make it as difficult or expensive to alter as possible. The harder it is to cash in stocks or funds, the better. Investments that make portfolio changes difficult include variable annuities, real estate, and load mutual funds (funds with a significant initial investment fee).

When a gambler stops trading for the thrill of it, he or she may encounter troubling feelings of loss, because this means giving up grandiose fantasies of fortune and the self-aggrandizement that accompanies such fantasies. The gambler may also feel deprived, because gambling on the market has occupied a great deal of his or her emotional energy. The answer for these investors is to find other challenges that offer controlled risks, such as reaming to sail, ski, or even fly an airplane.

Sometimes, a gambling investment style can become a gambling addiction–an insatiable urge to bet on the market. In this case, one valuable resource is the self-help group Gamblers Anonymous; call (213) 386-8789. A state medical or psychiatric association may also be able to refer you to a local therapist who specializes in treating gambling disorders.

The real thrill in investing is having a portfolio that performs dependably. Despite what some people believe about the market, it’s closer to a certainty than to a gamble.


Inheriting money has the same emotional impact as winning the lottery–in fantasy, it’s great; in reality, it can be fraught with problems. Inheritors often suffer from grief, confusion, guilt, embarrassment, and helplessness–feelings that make it difficult to invest the money or to make necessary changes in a portfolio they’ve inherited. The more ambivalent or embattled the relationship with the deceased, and the more the inheritor wanted the money, the more guilty he or she is likely to feel. If a person was left more money than his or her siblings, or believes they have been favored unfairly by the deceased, inhibitions about handling the money may well develop.

One way to assuage some of this guilt is to put labor into investing, or to work at finding a money manager and to devote effort to understanding the choices the manager is making. A primary responsibility of someone who inherits substantial wealth is to conserve the money and pass it along. Viewing oneself as a caretaker, rather than as a profiteer, can help to relieve guilt.

The inheritance can also engender a sense of shame because in our society money that is acquired without work has a certain stigma attached to it. This shame can cause the inheritor to feel that he or she should give the money away or “do good” with it. There is certainly nothing wrong with doing social good with one’s money, but this decision should be made on the basis of personally-held values, not on feelings of shame or irrational impulses.

Inheritors sometimes want to make socially conscious investments–for example, buying stock in companies that are friendly to the environment, have good labor relations, and promote women equally. But remember that taking a socially conscious approach does not mean that one can find total “purity,” since there are gray areas in the social records of most companies. There are mutual funds that won’t invest in industries such as tobacco, alcoholic beverages, and gambling, and which seek out socially responsible companies. An inheritor can also set up a charitable trust with the help of an attorney and donate regularly to worthwhile charities, a surer path to “doing good” than socially conscious investing.

Another emotional issue for inheritors is their reluctance to make any alterations in an existing portfolio, or even to think about investing a cash inheritance at all. A spouse, in particular, is likely to view changes of any sort as disloyalty to the deceased partner. I know that selling stocks the deceased selected can be as emotionally difficult as packing the deceased’s clothing up for the Goodwill, but portfolios often need to be restructured to adjust to the inheritor’s new status, goals, and income.

There are also a number of self-help groups for people who have inherited wealth. One such group is The Impact Project; write them at 2244 Alder Street, Eugene, Oregon 97405.

Finally, I always warn clients, and inheritors in particular, against strongly linking money and investment success with happiness. Inheriting money can be wonderful; but it is not a guarantee of happiness. The basic elements that create happiness–love, self-esteem, fulfillment through work, close relationships–can be nurtured by money, but they do not stem from it. For the true “fortunes” in our lives, we need to look elsewhere.


Several years ago, I surveyed successful investors to discover the personal qualities that make for high investing returns. These people had one trait in common: confidence.

Of course, self-assurance best develops out of having been adequately loved as a child, and not all of us were treated that way. But no matter what our upbringing, we can learn to be assured investors. Time after time I have seen confidence develop when clients uncover the emotional pattern that’s holding them back, make the necessary alterations, and accept the rewards.

Trust is the common element of confident investor practice. Though spirituality is not much talked about in connection with investing, I believe the two are linked, because trust is, after all, a spiritual concept. By trusting, we give up complete control, don’t fear market fluctuations, and become comfortable. We learn that the “abiding faith” we seek is in ourselves.

From Mind Over Money by John Schott, M.D., with Jean S. Arbeiter Copyright @1997 by John Schott, M.D. and Jean S. Arbeiter Reprinted by arrangement with Herbert M. Katz, Inc.


Buying “hot stocks” based on sky-high estimates of future earnings or promises of a “hush-hush” discovery that may revolutionize the industry;

Dreaming of making the “big score” on a stock that will double in price every few months;

Over-identifying with a stock;

Making excuses for a stock’s performance; and

Feeling grandiose about a stock: believing that there is no limit to how high it can go.


Psychiatrist/broker John Schott, M.D., on fear of finance

PT: What is the most common mental block that interferes with getting started in investing?

JS: For many people who come from working-class backgrounds, [investing] is taboo. And when they do take the first step, they have trouble talking to family members about it without seeming as though they have broken the taboo. It gives them a lot of guilt and anxiety.

PT: You tell people that the sooner they see themselves as investors, the easier it is to put money aside for stocks.

JS: I’ve instructed people to look in the mirror in the morning and tell themselves, “I’m an investor. My goals are…” The other thing I’ve done is to have them write little stories about themselves in which they change their sense of identity. If somebody thinks he is not an investor, he’d write a little story about buying a certain stock and holding it for so long, about how the price went up and how he felt. It makes people think in news ways.

PT: What’s the most painless way to begin an investment program?

JS: The best first step is mutual funds, because they tend to be less volatile than individual stocks. It’s also important to look at IRAs and investigate whether your company has a 40(k) plan.

PT: How can a 30-year-old with a modest income learn to delay gratification and invest X dollars each month instead of spending it on new clothes or a stereo?

JS: I tell people to voluntarily take a 10 percent pay cut. Those who do it find that within six months to a year they have completely adjusted their “mental accounting.” The 10 percent they take out is no longer experienced as part of their earnings. They’ve created a mental account that is sequestered, that goes solely for investments.

PT: Half of all money managers are female, yet many women still believe that investing is something men do.

JS: With most women, the first problem is a feeling of incompetence. About 10 years ago, men and women were surveyed about their confidence in investing. Across all cultural groups, about 80 percent of men were confident, but only 29 percent of women were. [This lack of confidence] has to be dealt with through education and support. I clarify with women the cultural misconceptions that exist and give them simple investment books to read, and they definitely become more sophisticated. In fact, women money managers can be superior investors because they have a lot more intuition than men and an ability to integrate a greater set of information about companies.

PT: How do you steer a course between letting the market drive you crazy and ignoring it all together?

JS: I ask people, “What if there was a stock market for houses and every day in the newspaper you house at 3 Chestnut Lane was listed, and yesterday you were listed at $401,000 and today it’s $399,500? How would that make you feel?” They respond, “It wouldn’t make any difference because I’m going to keep my house.” And I say, “You need to apply the same kind of thinking to the stock market. Decide which of your stocks are in it for the long haul and don’t look at them every day in the paper.”

PT: You’ve noted that this involves an almost spiritual degree of trust.

JS: Among the super-investors that I have known, a disroportionately high percentage have been very spiritual people. The highest profits in investing are made by discovering good companies when they’re undervalued, and holding their stocks for a long period of time. To do that, you have to live through market cycles. People with an abiding sense of faith seem to have that ability. Those who don’t, seem to do it through some other belief–perhaps a belief in themselves.


Being faithful to the investing style they choose;

Trusting what they already know about certain businesses;

Treating investing as a normal part of life, neither complicated nor scary;

Accepting uncertainty;

Listening to others, but relying on their own judgment;

Competing only with themselves;

Avoiding being too troubled by mistakes; and

Welcoming the gratification of growing rich.