According to a CNN/Opinion Research Corp. poll, nearly 60 percent of Americans believe a depression is “somewhat likely” (38 percent) or “very likely” (21 percent). However, the CNNMoney.com article that reported on the findings noted that economists “generally don’t believe another depression is likely.”
If “irrational exuberance” helped drive the market up, “loss aversion” may help explain why people are feeling so down. Behavioral finance researchers note that most people much prefer to avoid losses than to acquire gains, which means bad news has a greater negative impact on us than good news has a positive impact. Sounds like a case for not checking our retirement accounts so often (assuming we’ve been wise with our asset allocation!).
Taking our focus off of our own situation is another good idea for dealing with tough times. Wall Street Journal reporter Karen Blumenthal brought that point home in an article in today’s paper about why we are not likely to experience a depression. At the end of a piece that explained what’s different about our economy compared with the economy of 1929, she acknowledged feeling some personal angst over recent losses in her own investment portfolio. What’s helping her cope is the volunteer work she has done for over a decade, tutoring children whose families can’t afford school supplies or a visit to the dentist. “For the price of 45 minutes a week,” she wrote, “I return to my desk feeling as wealthy as one person needs to be.”