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PM: This is an extra episode of the Meaningful Money podcast, and I’m joined by great friend and frequent guest, Neil Bage from BeIQ. How you doing?
NB: I’m good. Bearing up in these strange times.
PM: Yes, these are strange times, and you reached out to me, which I’m grateful for. Past episodes with you, as one of the country’s foremost behavioural finance experts, are always well received. Of course, in the past these have been mostly theoretical, but it’s very definitely real in the here and now.
People are wondering what they should do and what on earth is going on. We don’t have a whole lot of questions like I usually do, we’re riffing here. Perhaps we could just start by reassuring folks that it’s ok to be worried right now?
NB: It absolutely is, and I’d go as far as saying, if you aren’t worried, then there’s probably something wrong with you! This goes beyond money, and I know this is the Meaningful Money podcast, but this goes right to the core of us as human beings.
When we are in the middle of a world that it seemingly falling around our feet, it’s really hard to immunise yourself against that noise, because there’s too much of it. This is really the deep root of human emotions, and every emotion we have – fear, anxiety, worry – all come to the fore.
Anybody who is worried right now with what’s going on – please rest assured, you’re just being a normal human being, and there’s absolutely nothing wrong in that.
PM: I think that’s a good place to start. I have seen some online messaging from people saying, ‘hey, it’ll be ok, this will be short-lived so we should just be cheery about it’, in a militant, ‘I will be ok no matter what’.
I kind of get that, but I think surely, it’s wisest first to accept and understand our natural human reaction before we try and take stock and control or impose how we react, as difficult as that is. Is there are a catharsis in accepting our humanity and that our reactions are normal?
NB: There is, but it’s also really difficult to deny them. If you think about the biology here, which is well understood: when we sense fear, our brain kicks in with the sympathetic nervous system. Everyone listening to this episode will understand that as the ‘fight or flight’ mode.
We either stay and battle to get through the fear, or we run. The old adage is, in days gone by, we saw a lion running across the savannah and we ran, but when our life is threatened by something that we can fight, then we will. This is a survival mechanism in every human being on the planet. When we sense fear, we either stay and fight, or we run.
Now the problem is in modern life, we don’t have lions chasing us anymore, or at least most of the planet don’t. In the western world, we don’t have that, but that fight or flight mechanism is still very much a part of who we are, but replaced by other things.
When we see a pandemic sweeping the world and the stock markets falling (and it’s not just by how much, but the speed at which it fell), they will trigger your sympathetic nervous system, so we’re in an unconscious state of fear. So, I can sit and accept that this is normal, but I can’t turn it off. I still mull over what’s going on and think, “will I be ok? Will my family be ok and how are we going to get through this?”
What we do for comfort is we turn on the news, or we go on social media, and that’s the worst place to be at the moment – that’s a pandemic in itself. We see and start taking in all of the news we’re seeing, and all of our behavioural biases, which I’ve talked about on this very show, kick in.
These are things like confirmation bias, loss aversion and probability neglect, and they all create an enhanced uncertainty in our heads. I can accept that I’m a human and I’ll panic, but it doesn’t mean I can stop myself panicking.
PM: That probably seems to most people easier said than done, and I wonder if part of that is because there’s a real lack of control. I guess if you’re on a mountain pass and you see a cave lion coming towards you, your options there are pretty binary.
Obviously, you can’t control the fact that the lion is much bigger and pointier than you are, but here we have a global pandemic and we have market forces 100% outside of our control, so I imagine that probably elevates the fear. For instance, if you’re driving a car and you hit some black ice, the thing that’s scariest is that you can’t do anything and at the mercy of physics.
It’s that lack of control that I think contributes a lot to people’s fear, and so it’s something I’ve said often here – as difficult as it might be at times, we have to concentrate on the things we can control and try not to give too much headspace to what we can’t. Would you agree with that?
NB: I couldn’t agree more. My parents brought me up with to only concentrate and give all of my effort to everything I can do that’s in my control, and it’s still a value of mine today.
Anything that’s outside of your control, be aware of, but don’t try to influence it, because you can’t. What you do is waste a ton of emotional effort to try and come to terms with something that’s completely out of your reach, such as the stock market.
You can’t control it and it’s going to do whatever it’s going to do, so don’t sit at home and think, ‘what can I do?’ because you can’t do anything. What you can do is control your reaction to that, and the way you want to move forward when the dust settles.
I’m a big advocate of what you’ve just said – control what you can, and put all of your effort into that. Everything else, that sits on the outside of what you can control, is not worth the stress, because it will send you into a place that’s not good.
You’ll forever be in a state of anxiety, worry, panic and fear. That’s not only not good for your mental health, but it’s not good for your physical health either. We can’t control the spread of the pandemic around the world, but we can control the spread of it in our own lives and do everything the government are saying.
I can’t control the stock markets falling, but I can control me tightening my belt and decide to stop discretionary spending just in case. We can all do little things that ultimately combine to have a good impact on what might end up being a very difficult world.
PM: It’s certainly going to be different. Obviously, this is not the ‘Meaningful Virology Podcast’, so we can only speak very little about what’s going on the world, but as far as finances are concerned, the market declines have been unprecedented. Not the depth of them, because we’ve seen declines like this before, but never quite so fast.
The FTSE and most of the major funds are down around 30 to 35%. Listeners who are in multi-asset or equities funds will be nursing some serious losses. There are some things we need to remind ourselves of, and they are almost like mantras. The purpose of these is so that they almost become subconscious by means of repetition.
In so doing, it can help us become more automatically able to cope with some of these things. Such as, ‘a loss is not a loss until you sell.’ So even though portfolios might be looking sick right now, that loss is not realised until you bail out into cash.
Then, the cause of the loss is your action, and that’s the stuff you can control, rather than market movements. Up until the point you sell, it’s a theoretical, paper loss, even though it doesn’t feel like it.
NB: It doesn’t feel like it at all! This is really interesting. You’re right that the speed at which the market fell, which was something like 15% in a week, was incredibly quick. That genuinely shocks. If you go back to 2008, I think the market at the start of 2009 was around 3,800 from 6,500, but that fell in 12 months.
In comparison, this decline has been really rapid, which makes it hard. People’s natural response, of course, is loss aversion. As we’ve said lots of times before, humans do not like uncertainty or ambiguity, or not knowing what’s going on.
So, if the market is falling, and I go online and people say, ‘Oh, it’s probably got further to go’ – which is guesswork and unhelpful to speculate about something that’s out of everyone’s control – the natural response is to react.
People think that inaction means they’re lazy, but not taking an action is a conscious choice, so you are taking action, to be inactive! People think, ‘Not doing something is lazy so maybe I should do something’, but it’s not. Listen to your financial adviser, because they know best. They’ve been through it before.
Yes, try to sit tight and stick to your financial plan, but get on the phone and have this conversation. Tell your adviser that you’re scared, because it’s ok to feel that way. Allow them to talk you through this.
I’m 45, so I still have a way to go before I take any of my retirement money. My pension is relatively equity-heavy, so it runs and I rarely look at it. I, like every other human being, and knowing the behaviours that course through my veins, see the news and think, “Ooh! I wonder what that’s done to my pension? Maybe I should do something about it.”
And then the intelligent part of my brain, which isn’t very big, kicks in and goes, “No. Neil, practice what you preach!” So, I effected a strategy of inaction, and I didn’t look at it. I didn’t even open it up, because I thought, “If I see it, that’s an additional piece of information I need to deal with.” I know it’s fallen, but not by how much, and I don’t care, because I’ve still got 20 years of my life for this to recover.
I get that there’s only going to be a segment of your listeners who are still in that position, who’ve got X number of years left. It’s different if you’re approaching retirement, because your timeframe is massively reduced to be able to recover.
But, if you listened to your financial adviser and you’ve got a diversified portfolio with equities, bonds and cash, the blow should have been cushioned anyway. I’m not a financial guy, but I still understand the benefit of diversification and not looking if you don’t have to.
PM: Exactly. And in unprecedented times, those things stay true. We’ve got clients in all kinds of portfolios, and those who are down the most are in a moderately adventurous, 75 to 80% equities. A couple of those have just gone past the 20% decline, but as the market is down 35%, that’s multi-asset in action.
A more balanced investor will probably find themselves somewhere between 10 and 15% down at this point. That’s still a lot, and when you translate that to pounds, which is how real people think, it’s still scary.
I like what you say about inaction being a positive choice, because we’re just so wired to ‘do’. “What can I do to escape this scary situation?” I either fight or I fly, but actually in this situation, doing nothing – positive inaction – is entirely valid, and the right response. Well, only hindsight will bear that out, but I’m convinced it’s the best of all options right now.
NB: It is, and there’s a great bit of research about goalkeepers who were they stood for penalties. Nearly every one of them moves, and nearly all of them fail to save the ball.
The statistics are absolutely crystal clear on this – if the goalkeeper made a conscious choice to do nothing and stood still, they’d save more penalties. This situation is similar. If you want to save more – metaphorically – then standing still and not moving at this time is probably the right thing to do.
But although I said I didn’t look at my pension, the market hit around 4,900, and I realised I’ve still got a chunk of my pension in cash, that’s 20% wiped off the investment model that I’m in. So, then I went in, took out the cash and put it back in the market.
And knowing all the behaviours that course through my veins, clicking enter on my keyboard was still scary. I have no idea, so it’s only my best guess. And it was only at that point that I saw how much money I’d lost in the scheme of things – 13%. So 13% of my pension has gone.
But actually, if I go, “Actually, the market’s cheaper, so I’ll put my cash to work, and hopefully the upside is that the equities and bonds will gain traction, and the cash will give it a bolster on the way up and then I can reassess.”
Sometimes, you have to look if you want to do something about it, but if you don’t have to do anything about it, then in these unprecedented times, being blind to it is good for your psychology.
PM: I imagine that follows for media consumption, which is all-pervading. We talk about confirmation bias; one of my staff went home earlier this week, because her A-level age son said “There’s a confirmed case at the college and a girl is on a ventilator.”
My staff member rang me and asked me if I wanted her to come in, and I said no, let’s get to the bottom of this. And it turned out to not be true – 100% jungle drums. I happen to know someone who works at Truro ICU so I know how many people are in.
There was nothing official from the college, but was just jungle drums in action. That can really exacerbate people’s panic and concern, and yet at the same time we want to be open to what’s going on and up to date with the latest guidance. How do we navigate that? Is there an easy way – surely not?
NB: There isn’t an easy way. I was having this conversation with my family recently about people on mobile devices all the time. What they tend not to realise is that if you keep looking at news on your phone, then your mobile phone will start to self-curate and deliver headlines based on your viewing consumption.
So if all you’re looking at is pandemic deaths, then in a week that’s all you’re going to see. That’s confirmation bias, and it’s never good. But we live in a really unusual time full stop. Forget what’s going on in the world regarding our health and our money, we live in really unusual times anyway.
Because we live in a world where we’re bombarded with information so quickly, and from so many different sources, we just haven’t got the time to filter through it all. We have to accept what we see and hope that everything we see is true.
That’s difficult if you’re seeing 30, 40 or 50 different sources of news coming at you about the coronavirus, and wondering which one is true. You might see that there’s been a case in Truro, so instead of listening to Mary who’s just told you, go onto the government site, which is being updated every day, and look at the reported cases. Look at an official source.
When I was looking at this early on, and wrote a blog about what’s going on, my source of evidence was the World Health Organisation’s website. It’s the only place where you can get true data. I don’t care about what John said, and it’ll be biased anyway.
My only tip to people, especially during the current times, is: If you want to know what’s going on and you want to give yourself some comfort based on fact and evidence, then only go to the official channels.
Twitter is not an official channel, and nor are LinkedIn and Instagram! Social channels are not official sources of news, they’re where people, who are human beings, who are scared, anxious and highly behaviourally biased, are coming together to talk to each other. That’s never going to be a place to get good fact-based news.
Remove yourself from it, and go somewhere where you know there is fact-based evidence. That gives you comfort, because then you know that these are the facts and you can deal with them. Removing ambiguity is key. Look for facts.
For instance, in China there have not been any more cases. How long were people in isolation? Three months. That means, if it’s the same for us, and it might not be, we can expect three months of isolation.
But if people are giving different stories, then you’re never going to reach that level of comfort. I say this to all of my friends and family – just go and find the evidence. It is there, especially during things like this, and it’ll make you feel a bit better.
PM: We’ve talked a bit about reminding ourselves of the objective truth of the mantras, things that we can use to forcibly engage our logical brain and just try to quieten the caveman brain. And to deal with the base fears and remind ourselves of what we know to be true historically.
We’ve also talked about being careful about what we’re consuming and going to evidence sources. What about the role of advisers in all of this? And not just financial advisers.
NB: I’m a huge believer, and always have been, of what I call a trusted adviser, and that doesn’t necessarily mean a financial adviser. What it means is someone you trust and who you can go and speak to about your deepest worries and concerns, and the positive stuff as well.
With everything coursing through your brain at this time, that’s really important. If we keep telling ourselves stories and they still in our heads, we read news, see social media and are bombarded with noise, we update the story in our heads.
If I keep it there, it can quickly become toxic and get dark very quickly. Even for the most positive people in the world, with what’s going on at the minute, it can get dark. Talking to somebody else, even if they may be going through the same thing, they’re seeing the world through their own unique perspective.
They don’t see it exactly as you do, and take information in differently. It may be that having a conversation with someone else opens up your mind to something else and gives you a little glimmer of light. It allows your story to be updated with somebody else’s perspective. It prevents it, to a degree, from becoming too messed up.
I have a handful of people who I explicitly trust and who I can talk to about anything and I know will never judge me. I know it’s fine for me to say to them, “actually, I’m not ok” and they won’t turn around and say to me, “Come on, British stiff upper lip.” They’ll say, “Why?”.
They’ll put their arm around me and we’ll have a conversation. I’ll say, “I think this” and they’ll say, “Yeah, but” and it’s those buts that make me think, “Maybe they’re right” and I update my story.As humans, we have an amazing ability to draw strength from other human beings. Isolating yourself and keeping your own narrative flowing doesn’t do anybody any good.
Find a trusted advisor, and that might be your spouse, one of your kids, your best friend or your financial advisor, and say, “I’m not ok. Can we have a conversation?” That conversation could turn out to be a really valuable part of the recovery process that we’re all going to have to go through.
PM: It’s so important. I suppose one of the positives in all of this is that there are now resources for that than ever before, thanks to the miracle of the internet. We’re humans, so we can’t beat human contact, but if we’re isolated then at least there’s a very good alternative. We can seek like-minded folks on line and that helps.
I’ve seen a lot of content creators who I’d watch anyway, such as Pat Flynn, who’s going live on YouTube at 8 o’clock every morning. I think that’s amazing. People are asking him questions about how to adjust things in their business, and that’s a great thing to be able to do. It wouldn’t have been possible 10 years ago.From my point of view, there’s 3,500 people in the Meaningful Money Facebook group, and it’s an incredibly supportive community. It’s a unique space – everybody’s kind, considerate and thoughtful in the way that they speak to each other.
I’m saying all the time, “just reach out, send me an email”. I’m getting a lot of emails at the minute and spending a lot of time trying to reassure people while at the same time not sugar-coating it or anything like that.
From my point of view, do reach out. I have a nagging feeling that the last 10 years of building this audience was to some extent for this time.
NB: That’s right, and one of the things we’ve talked about before is that my team has been building our behavioural insights app, and we’re about to launch a service for financial advisers.
Completely unbeknownst to us, the exact thing that we built it for is playing out in front of our eyes. We never hoped it would. Having that behavioural insight into who you are is valuable at any time, but now, it’s vital. Maybe it’s a good way to find out that actually, who you are and how you’re reacting is alright. It’s a valuable thing to go through.
I sometimes come across as dismissive of social media, but I’m not. At times like this, for many people it’s the way that they can reach out into the world and connect with other human beings. That’s crucial, especially as more and more people are forced to work from home. That’s something different that they’ve got to get used to as well.
There are lots of new things being thrown at people, so just reaching out – and I’d urge people to do this – and have a chat, will help you both realise that you’re not alone.
PM: We have no idea how this is going to pan out, but I have unshakeable faith in human resilience. We really like to buy and sell stuff from each other, so I’m really sure that the economy will be ok at the end of it.
Of course, there’s going to be human collateral in both loss of life, which is just unthinkable, and financial repercussions as well – jobs lost and companies falling.
I can’t possibly minimise any of that, but this too shall pass, and I’m convinced that we will emerge stronger, because that’s what we do as a species. I’m encouraged by that, while doing everything we’re asked to do to keep ourselves and everybody else safe.