As you know, there is the coronavirus outbreak which also has a great effect on the economy. I wouldn’t touch on the health aspect, but I’d like to look at another aspect of it: personal finance. How can we cope with hard times there?
Well, the current situation reminds me of the importance of risk management. There are always risks in what we do. We can’t be certain of the outcomes of our actions. Furthermore, there are factors beyond our control. What we should do is anticipate risks and be prepared for them.
That’s not easy, though. There is a book titled Big Mistakes that has an interesting subtitle: The Best Investors and Their Worst Investments. The key lesson from the book? People tend to be overconfident in good times. They don’t anticipate the bad things that could happen to them.
The opposite is also true: people tend to be too pessimistic in hard times. For instance, they might sell their stocks at a great loss in hard times. Emotions could lead people to act irrationally. That’s why it’s important not only to manage your risks but also your emotions.
To manage your emotions, I believe that the key is discipline. Plan how you would handle risks ahead of time. Then execute your plan regardless of your emotion. Of course, you may adjust the details of your plan as needed, but you should still be disciplined in following the principles.
So let’s manage our risks and emotions. Be disciplined. That’s how we cope with hard times.