What is Loss Fatigue?

This year for investors has been unusually difficult and painful. After many years of positive market returns even in the face of things like Covid-19, threats of trade wars, and geopolitical events like Brexit and the Greek Debt Crisis, 2022 is producing our first truly substantial downturn since the Great Financial Crisis in 2008. While market volatility isn’t new for investors, the length and duration of the drawdowns in the markets feels new and different for many investors, because it is. For the first time in almost twenty years, many investors are having to grapple with Loss Fatigue. 

What is Loss Fatigue? Loss Fatigue is simply described as a feeling of tiredness and weariness from continued losses, in this case, from the markets in 2022. CandorPath’s  Co founder and Certified Financial Planner Matt Marcoux described the position and feelings many investors are experiencing as “Death by a thousand papercuts.” Any individual day or monthly loss isn’t a big deal, much like a single paper cut, but the continued drawdown in the markets month after month begins to add up. In comparison, Matt points out that the drawdown in 2020 was much more like a band-aid being ripped off. For the most part in 2020, investors didn’t have time to worry about the drawdown in the markets because they began to rebound before most investors had opened up their monthly statements. This year feels, and is, much different. 

Why is 2022 so much different that investors are grappling with Loss Fatigue? The most recent recession in 2020 was deep, but it was short. The market movements were excessively volatile, but they were quick. The S&P 500 peaked in mid-February of 2020 before tumbling over 30% into mid-March, but had broken even by the start of August! In 2008, the recession was deep, as was the market collapse, but it too actually occurred pretty quickly. In the Great Financial Crisis of 2008, the S&P 500 lost over 50% of its value, but the majority of the downturn occurred between September of 2008 and March of 2009. 2022 hasn’t had any of those “washout” moments, instead it’s been a long grind lower, aggravated by the fact that bonds have had their worst year in about 50 years. 

What can investors do to combat loss fatigue? Matt and the CandorPath Team recommends sticking to your plan. If you’re an accumulator, meaning you are still working and actively saving, each successive down month offers an opportunity to buy assets at a cheaper price. Don’t let the markets going lower deter you from your savings goals. If you are a retiree or someone living off your investments, stick to your dynamic financial plans. Our plans are built on conservative estimates that give us confidence for your financial success in retirement. Even more so, your plans are “dynamic and living”, meaning, as the market changes, we can see how it affects your plan. If changes need to be made from a cash flow and budgeting standpoint, we can make them.