Making Decisions in Times of Market Turmoil – Innovate Finance – The Voice of Global FinTech

Original blog can be found here!

Soft-spoken reminders to be reasonable are rarely heard when the screams of plunging stocks are hitting the headlines and their values are hitting new lows. Taking action amid such noise isn’t necessarily difficult – indeed, often it’s far too easy – but it is dangerous.

It’s dangerous because humans have a hardwired bias to action. We dislike uncertainty and a lack of control so much that we can derive comfort even from certain disaster – as long as it’s certain. Even an evil overlord can be an antidote to the anxiety of chaos because at least it has a face we can point at. Market turmoil does not provide the sort of strong base from which effective decisions are made. But they are the strongest trigger for kneejerk decisions, however costly.

All, however, is not lost. What we want is to take the right action for us. That right action could be doing nothing, but doing nothing because of comforting messages, not despite discomforting ones.

Zoom out a little and there are some simple and sensible things we can tell ourselves, and some strong and safe actions we can take. You want to assuage your need to be feeling you are doing something right now, while also securing your emotions to a longer time horizon.

Regardless of personality, there are also universal principles that can provide helpful perspective when investing in times like this. The three most useful things for all of us to keep in mind right now are:

What you should do beyond these universals depends on your financial personality. This provides your unique recipe for investment-derived emotional comfort, so that you can aim to achieve it in a cost-effective and deliberate way. Prevention is better than panic, but even when it’s too late for prevention this time, panic needn’t be allowed to set in.

The Oxford Risk Market Emergency Kit measures several key dimensions of your financial personality that are crucial to understanding how best to respond in a crisis. These can guide you on how to approach your portfolio in these turbulent times, helping to prevent the costly kneejerk response that feels so tempting.

For example, here a just a couple of the personality dimensions and possible personalised recommendations within the tool:

Financial personality profiling allows us to predict where we’re likely to make poor decisions and helps us to avoid them. It helps us acquire the emotional comfort we need in a cheap, planned, and efficient way, rather than panic-buying our way back to comfort by panic-selling under stress.

And finally, don’t say ‘don’t panic’ – It helps no one. If you’re already panicking it won’t work, and if you’re not, you may wonder if you should be.

This content was originally published here.

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