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I RECENTLY CHATTED with a clerk at an art supply store. We both complained about the Texas heat. Whenever I engage in small talk or meet new people, the weather is my safe, go-to topic. As the saying goes, “Everyone talks about the weather, but no one does anything about it.”
Changes in the weather affect us to varying degrees—pun intended. Some effects are minor, like rain interrupting our outdoor plans. Others are more serious. When the fall and winter bring darker and colder days, many people experience seasonal affective disorder (SAD). Symptoms vary, but SAD is manifested by listlessness or sadness, if not outright depression. In extreme cases, there’s a feeling of hopelessness or worthlessness and an all-around negative view of life. It’s an extensively documented medical condition.
An estimated 6% of the U.S. population are affected by SAD. Another 14% suffer from a lesser form of seasonal mood change known as the winter blues. It’s more common among people living farther from the equator, where daylight is in shorter supply. Fourteen percent of residents of Oslo, Norway, have seasonal affective disorder compared to 4.7% in New York City.
This mood disorder can affect our decision-making, including our financial decisions. Negative and unsure feelings increase risk aversion among investors. Risk-averse investors are less willing to buy stocks, and may even consider selling the stocks they already own.
According to a paper that analyzed the flow of money between mutual fund categories, investors prefer safer mutual funds in the fall and riskier funds during spring. The same researchers found this trend was offset by six months in Australia, where the seasons are reversed.
A study published by the Federal Reserve Bank of Atlanta concluded that stock returns vary seasonally with the amount of daylight in the fall and winter. Another study by the University of Toronto’s Lisa Kramer found that, on average, markets tend to decline following the fall time change.
I draw two key lessons from this research. First, we are human beings, not unemotional Vulcans like Star Trek’s Spock. Outside factors, like diminishing hours of daylight, may affect our emotions, whether we’re conscious of it or not. Second, this emotional changeability can affect our decision-making ability, rendering us less rational.
What can we do to combat the effect on our investment strategies? Here are three approaches that work for me.
First, have a solid investment strategy and stick with it. A good safeguard is to own a balanced portfolio with a blend of risky and safe investments that you feel comfortable with. In our case, this means having about five years of spending money in cash investments. On top of that, my husband Jim’s 403(b) is invested in a guaranteed fixed-rate annuity.
My IRA is invested mostly in stock funds, with a tilt toward value and small-cap shares. I follow investment advisor Paul Merriman’s ultimate buy-and-hold portfolio. Regardless of the season or the economic conditions, I buy and hold. When the stock market took a tumble this year, I made no changes.
Admittedly, I’m uneasy seeing the value of my IRA decline significantly. But knowing that I don’t plan to touch that money for another 15 years means I can afford to ride out this downturn. I also remind myself that, during the Great Recession of 2008-09, I took advantage of the steep decline by continuing to buy stock funds, and those purchases proved very profitable.
Second, while we can’t eliminate or completely control our emotions, we can set up a system to eliminate the temptation to act irrationally. In my case, this means investing automatically. With automatic contributions, I buy even when the market is down, no matter what my mood.
Third, I recognize that there’s a seasonal component to our emotions. When my mood is low in winter, I understand that it’s probably only temporary. As the saying goes, “What goes up must come down”—and vice versa.
It helps to have a strategy to get through the rough patches. I surround myself with things that are comforting and try to go easy on myself. This was especially true in 2020. Not only did we face the COVID-19 lockdown, but my father—after a prolonged illness—passed away that December.
I was lucky to have the companionship of Jim and the cats. I started drawing and painting to get through the day, and tried to keep in mind that spring was just around the corner.
Jiab Wasserman, MBA, RICP®, has lived in Thailand, the U.S. and Spain. She spent the bulk of her career with financial services companies, eventually becoming vice president of credit risk management at Bank of America, before retiring in 2018. Jiab lives in Texas with her husband Jim, who also writes for HumbleDollar. She’s an advocate for addressing the issue of gender inequality. In addition to writing and playing tennis, Jiab creates and sells art, which is available through her online shops. She and Jim are working on a new book, due out in 2023, that examines the impact of social media influencers on youth consumerism and identity development. Head to Linktree to learn more about Jiab, and also check out her earlier articles.
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Nice article. It is amazing how our decision making could be impacted by so many factors. This makes it even more critical to have up to date personal investment plan and follow it, regardless the weather outside (hot or cold).
Thanks for this article. I always knew that I felt sad/hopeless in the winter months but never knew that there was a name for the hopelessness that I felt. I have felt this way since I was a child and I am now in my early 50s. I truly appreciate this knowledge on SAD and will remember to follow your advice. Much appreciated Jiab!
There are light therapy boxes to combat SAD, though in Florida we don’t have as much of a problem with it, so I have no personal experience.
Great article Jiab. My wife frequently gets the winter blues in February. Getting away to somewhere warm and sunny helps, even for a short time. We’ve done that a few times, but need to make it a yearly part of our travel.
Good article, Jiab. As I’ve gotten older, in my best moments I’ve come to realize that more of my life is beyond my control than I once cared to admit. That can include my mood, as you point out, and the value of my portfolio. And those two can show a strong positive correlation. While humbling, the honesty can be a starting point to move through and beyond the ‘“rough patch “. You offer good suggestions for doing this. I might add that the experience of coming out the other side of a few of these patches can help to smooth out the emotional ups and downs.