I have a friend who is an emergency room physician in Salt Lake City. The other day, he described to me an interaction he had with a distressed, uncomfortable patient. After doing all the tests he could and finding nothing wrong, all he could do was give the patient that age-old, wonderful doctor advice: “Go home, rest up, drink fluids and call me in the morning.”
“The funny thing about this patient,” my friend told me, “was that after I told him nothing was wrong and he should just go home, he actually seemed disappointed.”
This happens all the time, according to my friend. It often seems like the patient would rather have a bad diagnosis than face an uncertainty that could well be labeled “good.” It’s fascinating: We yearn so badly for clarity that we often prefer a negative outcome we’re certain about to one that leaves us in suspense.
There is a lot of research about the relationship between uncertainty and worry. In 2001, a study by Michel J. Dugas, Patrick Gosselin, and Robert Ladouceur said of the connections: “Considering that daily life is fraught with uncertain situations, individuals who are intolerant of uncertainty may perceive several ‘unacceptable and disturbing’ events in the course of a single day.”
Clearly, that intolerance of uncertainty can wreak all sorts of havoc at home, at work, at school or in relationships. It should come as no surprise that it can create major problems for us in our financial lives as well.
One way this fear manifests itself in our investments is when we make hasty or rash decisions based upon cataclysmic market forecasts, like the one this year from RBS suggesting that people sell everything in their portfolios except high quality bonds.
In spite of the abundance of evidence that proves that market forecasts are often wrong and lead individuals to make decisions that hurt them over the long run, we still embrace and act on them. We do something that we know is a bad idea just to eliminate that feeling of uncertainty. Selling when your portfolio is down 20 percent — we know that’s a bad idea. But we prefer the negative outcome of locking in those losses because it’s certain.
We all know that life is uncertain. You can’t predict the future. You can’t time the stock market. You can’t forecast which years are going to be good and which years will be bad.
So how can we get better at accepting it? We can build a portfolio that matches our goals. We can own lots of different kinds of investments, with the knowledge that most of the time, they won’t all fall sharply at once. We can keep the costs of those investments down.
But after we’ve nailed down all those things, there’s still going to be uncertainty in the air. The sooner we can accept that the better. That’s life. That’s reality.
This commentary originally appeared February 8 on NYTimes.com
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