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How to make financial decisions in turbulent times

With the world facing its most unpredictable future, understanding how to make financial decisions in turbulent times is critical.

Last updated 11 November 2022 at 15:07

The modern world has become somewhat unpredictable. From Trump’s America and the shadow of nuclear war with North Korea, to Brexit in the EU, investors around the world are faced with a seemingly unstable stock market.

Rising socio-political tensions, as well as climate change and the importance of sustainable resources an ever increasing concern, where to invest becomes just one question in a sea of conundrums. In all this, you may find yourself wondering, ‘where should I invest my money as an Expat during uncertain times?’

What are the risks?

Increased uncertainty has entered the stock market, and investor behaviour has changed with it. At the same time as the meteorological rise of the FANG stocks (Facebook, Amazon, Netflix, and Google), many countries have also been affected by debt crises, high unemployment levels, poverty and damaged infrastructure.

How we react to this unpredictability is, arguably, one of the biggest risks we face. Behaviour driven by doubt, panic or fear is rarely profitable in the long term. An example of this is representativeness: which is when, in moments of uncertainty, we relate the current event to whatever vaguely similar event we have in our recent memory. In most cases, this memory doesn’t resemble the current event at all, and has no bearing on it.

Another emotional reaction is known as saliency, where we relate the current event to the most extreme event of it’s kind we can remember, but which also, in reality, has nothing to do with what we are experiencing now. To counteract these human errors, it’s wise to put some structure in place.

How to make investments in uncertain economic times

Take your time

One answer to counteract the turbulence of the stock market is to invest long term. When human mistakes like overconfidence or ‘anchoring’ occur and emotions get involved, it’s best to have a long term plan to refer back to.

‘Anchoring’ is when you decide to buy or sell a stock keeping in mind what you paid for it originally. You track the stock’s current price in relation to that original price, when in fact no such narrative chronology exists for the stock. Becoming emotionally invested in a particular stock, investors sometimes wait around when it’s failing for it to pay back what they invested. Once again, this is a story the investor tells themselves about the stock that has no relation to its actual behaviour in the market.

These behaviours can cause you to buy or sell in the absence of a structured plan, although it’s wise to be cautious about the impulse to do so. When making your investment, you should be thinking about sticking with it for around five years or more. Try not to let emotional anchoring, short term market wobbles or public buyouts cause you to lose sight of your financial goals.

At the same time, opportunities for investors can arise from those stock market ‘wobbles’. You may see stocks from a wide variety of sectors on your wishlist dip in value for a short time, and this is your opportunity to add them to your portfolio. Think about the stocks you want to own, and focus on those. It’s common for markets to recover from downturns over an extended period of time.

Don’t let your actions be driven by fear

The stock market can be an unpredictable and surprising environment in which to invest your money, a lesson that all new investors learn quickly. The key is to remain calm and accept this volatility as what it is: par for the course.

The reality is, we can’t predict the way the markets are going to go and the best thing to do, rather than guessing, is focus on the stocks you want to own. Human error leads to human mistakes, and the inevitable pitches and waves of investing in turbulent times can (understandably) throw you off, leading to snap decisions made out of fear.

Having a diverse portfolio is one route to take to ensure you’re neither drawn in by the crowd, buying when the going is good, nor selling when everyone else sells during a brief market wobble. So, try to think of your investments as long term, and don’t let fear cause you to lose sight of your plans.

If you’re still unsure, or are new to investments, it’s always best to get independent advice. Investing in someone to help you stay focused on your long term goals and increase your ability to stay level headed will be your greatest support while investing as an expat in financially turbulent times.

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