Every few weeks, a headline flashes that shakes investor confidence: “Markets plunge 800 points on global cues,” “Oil prices surge amid conflict,” or “RBI keeps repo rate unchanged, markets unimpressed.” In such moments, it’s natural to feel anxious. But as a behavioral finance expert and wealth advisor, let me tell you this: markets may move fast, but sound investment decisions must not.
The Cost of Emotional Investing
When uncertainty strikes, fear follows. Fear causes investors to panic-sell, hoard cash, or follow the herd into speculative bubbles. These knee-jerk reactions often erode long-term gains. Behavioral finance defines these reactions under loss aversion (we feel the pain of losses twice as much as the joy of gains) and availability bias (recent, dramatic news influences us disproportionately).
Take the recent market reaction to the Middle East conflict in June 2025. The Sensex fell nearly 1% in a day after U.S.-Iran tensions escalated (Economic Times, June 2025). Headlines screamed, and investors fled to gold and government bonds. Was this a wise decision? For some, yes. But many exited equity positions out of fear, only to miss the subsequent bounce-back within a week.
The Role of System 2 Thinking
Daniel Kahneman, in his seminal work Thinking, Fast and Slow and latest book Noise, describes the brain as operating in two systems. System 1 is fast, instinctive, and emotional—the system that triggers panic when markets dip. In contrast, System 2 is slow, deliberate, and analytical. It allows us to engage in “metathinking”—the ability to think about our own thinking. This conscious self-monitoring helps investors pause, assess their biases, and make reasoned decisions instead of emotional ones. Training ourselves to rely more on System 2 during volatile times is key to long-term investing success.
Anchor to Your Plan, Not the Noise
Your financial goals — retirement, child’s education, a dream home — haven’t changed because of a headline. Then why should your plan? A well-constructed financial plan already factors in volatility. As Morgan Housel writes in The Psychology of Money, “Doing well with money has a little to do with how smart you are and a lot to do with how you behave.”
Ask yourself: Have my goals changed? Has my time horizon shifted? If not, don’t alter your strategy. This is the time to stay the course, not abandon ship.
Practical Moves, Not Panic Moves
Instead of reacting emotionally, act intentionally:
- Diversify: Spread investments across equity, debt, and alternatives.
- Maintain liquidity: Keep 6-12 months of expenses in liquid instruments.
- Reassess risk: Not during market turmoil, but during annual reviews.
According to SEBI, the number of SIP accounts crossed 8.3 crore in April 2025, with investors committing over ₹14,700 crore monthly (SEBI Bulletin, May 2025). This shows long-term discipline pays off. Investors who stayed invested during the 2020 COVID crash saw their wealth multiply post-recovery.
Pro Tip from Meghna
Don’t react. Reflect.
When market noise gets too loud, step back. Review your portfolio with your advisor. Ask, “Am I investing based on fear, or based on my plan?”
Use this three-step framework:
- Stay informed: Know what’s happening, but don’t obsess.
- Stay calm: Remember, market volatility is temporary.
- Stay invested: Long-term investing beats market timing every time.
Closing Thought
In investing, emotion is the enemy. History shows that markets recover, often stronger than before. But decisions made in panic often have lasting consequences.
So the next time headlines scream, take a deep breath. Don’t let the noise drown your strategy.
Feeling overwhelmed by market news? Let’s talk. Book a one-on-one session via www.moneywithmeghna.com and build clarity in your investment journey.
Disclaimer:
This article is for educational and informational purposes only and does not constitute investment advice or a recommendation. The views expressed are based on the author’s personal research and expertise in behavioral finance and wealth management, and are not affiliated with or endorsed by any mutual fund house or financial product provider. Professor (Dr.) Meghna Dangi is not a SEBI-registered investment advisor. These are not promotional endorsements of any specific brand or financial institution.