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Don't let your coronavirus anxiety cause you to make these money mistakes

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The recent market volatility has no doubt caused increased stress and anxiety among investors.

That alone is enough to lead someone to make a mistake.

Add disruptions in our daily lives caused by the coronavirus pandemic and people are even more likely to make bad choices, according to Morningstar's new report, "A Behavioral Guide to Market Volatility."

"Because so much of our daily lives [is] based on habits, when we work from home, when we are unemployed, when our daily routines change so fundamentally, we can't rely on those habits, and that makes us feel unsettled," said Steve Wendel, head of Morningstar's behavioral science team and co-author of the report.

"It makes us feel tired," he added. "It makes us feel overwhelmed."

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Yet there are things you can do to help you avoid making an emotional, snap decision that can hurt your portfolio — both before and during bouts of panic.

Be aware of biases

It is natural for our minds to take shortcuts. This usually helps us make fast decisions — the tens of thousands we make on a daily basis, said Samantha Lamas, Morningstar behavioral researcher and the report's co-author.

"When it comes to investing, those shortcuts can lead us astray, and that is when they turn into biases," she explained.

Educating yourself about those biases before volatility hits can help. They are:

  • Recency bias: Our mind naturally reaches for what happened more recently, as opposed to further in the past, when trying to predict what's going to happen.
  • Herding behavior: Following the crowd, even if it is going in the wrong direction.
  • Action bias: The urge to take action instead of staying the course, even though it may not be the right move.
  • Overconfidence bias: Believing we are better than the rest, which can lead to investors believing they'll be spared the pain others will experience.
  • Confirmation bias: Automatically paying attention to information that supports your belief.
  • Loss aversion: In general, a loss feels twice as powerful as gaining the same amount.

Set up barriers

You can try to externalize your investment decisions by adding some friction into the process, like having a three-day wait rule before you make a move, Lamas said.

"Having that buffer period helps you take a step back from your emotions and hopefully tap into that more logical side of your brain," she said.

Write a note to your future self

When you are relatively calm, write down what your goals and values are and why it is important to stick to your financial plan.

So down the road, when you may start feeling a little anxious, you can remind yourself why you shouldn't make any rash decisions, Lamas suggested.

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Think the opposite

If you want to make a trade, try to explain to yourself why someone would want to buy the same investment.

Forcing yourself to get a different perspective can help you break the habit of only seeing things that support your opinion, Lamas said.

Redirect your action bias

If you are itching to take action while the market is dropping, like selling stocks, redirect that bias.

"Take action, but the right action," advised Lamas.

You can increase your savings rate or take advantage of investments that may be available to buy at a discount right now, she suggested. You can also look for tax savings or rebalance your portfolio.

Reconnect with your goals

Morningstar has developed a three-step process to help investors slow down and reconnect with their long-term goals.

First, write down your top three investing goals. Then compare them to a list of common investing goals, listed here. Check off goals you think are important and forgot. Then revisit your top three goals to see if you want to make any changes.

Morningstar's research has found most investors end up changing at least one of their top three goals.

Set up a schedule

In times like this, it is a good idea to "turn down the noise," Lamas said.

You may be tempted to constantly check the news and your portfolio. Instead, set up a crisis schedule that allows you to get the information you need without going overboard.

For Lamas, that meant going from checking the news once an hour to just once every morning.

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It can also mean looking at your portfolio once a month or once a quarter.

"It is your information diet on how often you are checking and to avoid obsessing over one's portfolio or over one's finances overall," Wendel said.

In the end, it's important to take care of yourself.

"Sometimes we really just need to take a break," he said.

"Look at our sleep, look at how we are doing and just wait a little bit until we are in a better place."

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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.