Navigating financial uncertainty: reacting vs responding to global events

Global instability and geopolitical tension are real and tangible, and shaping the financial environment in which households operate. From rising geopolitical conflict to the knock-on effects of higher oil prices, global uncertainty is filtering into the everyday financial realities of South African households at an accelerating pace.

While these events are beyond our control, their impact on our long-term financial well-being is shaped less by the events themselves and more by how we react to them. Research done by Momentum found that money attitudes fundamentally reshape how personality traits translate into behaviour.

In times of uncertainty, financial resilience is not about predicting global shocks; it’s about responding rather than reacting – taking a step back, consulting with a professional, and only making a decision once everything has been considered. 

The anatomy of a reaction

When markets fluctuate or global conflict threatens supply chains, people tend to react emotionally. In financial terms, this manifests as an impulsive, emotionally driven, and panic-related investment switching. 

Such reactions are not unique but rooted in our approach and attitude to money. For some, it triggers a freeze response, leading to missed opportunities for rebalancing. For others, it triggers a panic response, resulting in losses that might have only been temporary.

Lessons from the past

We saw these patterns play out during the COVID-19 pandemic. As the world locked down, many investors reacted to the initial market shock by panic-switching their investments during market uncertainty. This group lost up to 4.69% of their investment value, missing the recovery when markets stabilised. 

Conversely, those who responded rather than reacted, viewing the crisis through a lens of both risk and opportunity and consulted with a professional before making a decision, were better positioned to benefit when markets stabilised.

The compounding cost of impulsivity

The consequences of reacting rather than responding extend beyond simple market losses because often, hasty decisions come with significant tax implications and structural hurdles. 

For instance, withdrawing from certain investment vehicles prematurely (especially if these are retirement vehicles and you have not yet reached retirement age) can trigger immediate tax or penalties, disrupting the compounding growth essential for long-term wealth creation.

A proactive partnership

In times of heightened tension, the goal is to move from adopting a defensive position to a proactive one. Both investors and their financial advisers can play a proactive role in reducing risk by focusing on what is controllable. 

As a stabilising influence during periods of uncertainty, understanding an investor’s money personality and behavioural tendencies, financial advisers play an important role in helping clients navigate the noise of uncertainty. They do this by also distinguishing between temporary market volatility and meaningful structural shifts in the economy.

Crisis vs. opportunity

History suggests periods of maximum uncertainty often present unique opportunities for those with a clear strategy. However, identifying these opportunities requires a calm, authoritative assessment of the landscape that balances the inherent risks of global conflict with an individual’s long-term financial goals. 

While global instability may increase the financial strain on households, a strategic response ensures the road ahead remains visible and viable. By shifting the focus from external chaos to internal discipline, individuals can become masters of their financial destiny.

There will always be reasons for concern. However, in times of geopolitical tension, your response is more important than what is happening around you.

Nel is the head of financial planning and advice at Momentum.

PERSONAL FINANCE