The link between emotional resilience and financial wellbeing – and how you can improve yours

July 8, 2024

Emotional resilience is an important skill in many different areas of your life. No matter your age, job, or level of wealth, being able to weather a storm and bounce back from challenges can have a significant effect on your life.

But did you know that it can also affect your finances? The ability to regulate your emotions and avoid making rash decisions during times of stress is valuable for an investor.

Read on to learn more about how the two are connected and how you can improve your emotional resilience so that you can continue to make sensible decisions about your wealth in good times and in bad.

Our emotions can be a powerful driver

You might consider yourself a logical and rational person, but the truth is that humans are driven by emotions all the time. In fact, without emotions to inform our decisions, we’d likely take no action whatsoever – emotions provide crucial information when we’re deciding how to respond to a situation.

When it comes to investing your wealth on the stock market, though, your emotions may not be as helpful as they usually are.

This is because your emotions are designed to help keep you safe. Back when we lived in tribes and hunted animals to survive, emotions enabled you to detect when there was a threat of danger from a predator or an unfamiliar person. They helped you to avoid taking unnecessary risks.

Sadly, this doesn’t translate well to investing in the stock market. Investing, by its very nature, is all about taking risks in the short term to deliver long-term security, something that our emotions can’t really help us with.

When the stock market goes through periods of uncertainty, these risks can feel much greater. As a result, you might experience emotions like fear, anxiety, and panic, which can lead to you wanting to move your investments out of what you perceive to be a dangerous wrapper. Even if you know that this might not be the most sensible decision for your long-term wealth, fear can make it difficult to think logically.

Emotional resilience means you can take control of your emotions even during times of stress

Strengthening your emotional resilience is a valuable practice for anyone. When you are emotionally resilient, you can approach challenges with a more relaxed and confident attitude. It’s not about repressing your emotions, but rather being able to work with them to ensure you can continue to make the most sensible decision based on all the facts.

For example, let’s say a world event causes your portfolio to drop in value by 10% over the course of a year. This might be extremely worrying, and your first thought might be to take your money out of the stock market to avoid further losses.

But consider things carefully and you might remind yourself that you originally intended to hold these investments for many years to fund a long-term financial goal. By rationalising the time horizon of your investment and reminding yourself that an occasional drop in value can be expected, the situation may seem far less dangerous to you. As a result, you can make an informed decision about how to proceed.

Emotional resilience is what makes it possible to take this time to consider the options carefully and come to the right decision for you.

3 steps to strengthening your emotional resilience

Fortunately, it is possible to boost your emotional resilience. Below are three practical ways you could enhance yours so that stressful situations needn’t lead to rash decisions.

1. Practise looking for the positives

When challenges arise, it can be tough to see the positives in a situation, but that’s exactly what emotionally resilient people are great at. It’s not about pretending everything is ok, rather it’s about acknowledging the negatives while still having hope.

The more you practise this, the easier it will become. When a challenge arises, start by looking for one small positive. Over time, challenge yourself to look for more positives. Consequently, stressful situations will soon feel much more manageable.

2. Surround yourself with a reliable support network

Humans are social creatures, so it makes sense that we’re at our best when we surround ourselves with friends and family who can support us. Having meaningful social connections encourages your brain to release feel-good hormones like oxytocin, making it much easier to remain calm and collected when you face challenges.

3. Exercise to keep your body and mind strong

Another trait of emotionally resilient people is that they keep themselves physically and mentally fit. Exercise, particularly vigorous exercise like running, can help your body to learn how to respond to stress positively, as you will often experience the same symptoms of anxiety during exercise, including a raised heart rate and rapid breathing.

As well as keeping your body fit, exercise can help your mental health by releasing endorphins and reducing levels of the stress hormone cortisol in your body.