In the past 20 years, there have been three moments of outright panic in the stock market:

  1. The dot-com crash in 2000.
  2. The Great Recession that officially began in the fall of 2008.
  3. The onset of the COVID-19 pandemic in the U.S. in late February of this year.

It took the Nasdaq 15 years to reach previous highs in the first case. It took the S&P 500 five years and six months to recover in the second instance. And this year's pandemic? It took all of six months.

And yet, GDP has fallen by one-third (on an annualized basis), unemployment hovers near 8%, and by the end of the year, estimates point to 250,000 Americans dying as a result of the pandemic. It's enough to make a lot of people feel like the other shoe is about to drop -- again!

My suggestion to deal with all this: Examine and refine your habits. By doing this, you can not only survive as an investor in these volatile times, but thrive. Here's how.

Doctor with closed eyes and mask on

Image source: Getty Images.

We weren't built for this...

When you get started as an investor, it's almost impossible to resist checking your stocks multiple times per day. It makes sense -- this is a fun and exciting new adventure. Plus, you're about to get rich! The biological reason we do this is because of the constant dopamine hits it provides -- hits which cannot be satiated.

We evolved to experience the chemical when we do something highly beneficial -- eating food, having sex, being in the sun, and interacting socially. Crucially, however, we also evolved the ability to say, "Enough. It's time for me to stop." 

Modern life, however, has co-opted that process. We have a much tougher time saying "enough" to relatively new stimuli. Humans didn't evolve the shut-off valve for a host of addictions, including internet surfing, gambling, and compulsively checking our portfolios. The effects aren't pretty: It's not healthy to spend so much time doing such things.

Constantly monitoring your portfolio causes chronic stress in normal times. The stress it would create in another stock market meltdown might feel unbearable. In fact, researchers have found that the brain doesn't make much of a differentiation between physical pain (breaking your leg) and emotional pain (losing 30% of your nest egg).

...and that's OK! 

But you don't need to despair. There are small -- but hugely beneficial -- interventions we can implement that solve this evolutionary mismatch. For instance, we didn't evolve to sit around at computers all day, either. By simply intervening with an exercise routine, we help bring our body back into alignment.

We can do much the same by following four very simple steps -- two focused on your financial life, and two focused on your mental/emotional life. Let's cover the finances first:

  1. Cover your downside: It's crucial that you make sure you'll be able to withstand a worst-case scenario. If COVID-19 gets worse -- or something else calamitous happens -- you might lose your job. That's why it's vital to make sure you have covered your basic insurance needs (health, home, auto, etc.) and you have an emergency fund that can cover your costs for a minimum of three months without any income.
  2. Don't invest what you need: The stock market goes up more than it goes down. But when it goes down, it can go down fast. Knowing this, you should never invest any money you think you'll need in the next three years. That means -- painful as it may be -- that your down payment for a house or the first year of college tuition for your high school junior should be sitting in cash or bonds.

While you give up potential gains by making these moves, you also greatly reduce the chances of regrettable losses. And when you have the opportunity to minimize your maximum regret, you should do it!

But investing -- like many things in life -- is about 80% emotional and behavioral. Getting your mind right is equally important. Here are two ways to do that.

  1. Take the long view: Two World Wars, the atomic bomb, two pandemics, massive social upheaval; these are just some of the changes that have occurred over the past 120 years. And yet, $1 invested in an equivalent of the S&P 500 in 1900 would be worth (including dividend reinvestment) over $2,400 today -- adjusted for inflation! Today's mountain will almost certainly look like a molehill in the rearview mirror.
  2. Remember your "why" and focus on what really matters: There needs to be a "why" behind your investing. Perhaps you invest for obvious reasons, like retirement or your kids' college. Perhaps it's more psychological, like not having to worry about money or having control over your time. Whatever it is, remember that your investments should serve you -- not the other way around.

That last point can't be made enough. When we stop, pause, and put things in perspective, we are able to respond with wisdom instead of reacting with fear. That's not only better for our portfolios, but our experience of life as well!

And lest that not convince you, remember the five regrets of the dying, which were turned into a book by a palliative care nurse. In order, they were:

  1. I wish I'd had the courage to live a life true to myself, not the life others expected of me.
  2. I wish I hadn't worked so hard.
  3. I wish I'd had the courage to express my feelings.
  4. I wish I'd stayed in touch with friends.
  5. I wish I'd let myself be happier.

Most notably, regrets about stock market gains and losses were nowhere to be found on the list. That doesn't mean your investments don't matter at all. It just means they should be put in perspective. When you realize things like being true to yourself, staying in touch with friends, and expressing your feelings are completely in your control -- no matter the stock market's moves -- you're able to behave in grounded, centered ways.

That's a recipe for success -- in investing and in life.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.