Investment decisions should not be driven solely by how much money individuals have, but by their emotional and psychological capacity to handle financial risks, a financial expert has advised, stressing that understanding one’s reaction to market fluctuations is critical to long-term success.
Speaking in an interview with ARISE News on Thursday, Daniel Akinwunmi highlighted the importance of risk assessment, noting that investors often overlook their emotional responses when making financial decisions.
“I’m sure you want to invest based on your pocket, but I want you to invest based on your psychology,” he said.
According to Akinwunmi, many investors fail not because of poor market conditions but because of how they react to volatility, particularly during periods of loss.
He explained that a key role of a fund manager is to evaluate an investor’s tolerance for risk by observing how they respond to potential losses, such as a 10 percent decline in their portfolio.
“One man thinks, ‘Down 10%, I would average down.’ Another man thinks, ‘Down 10%, oh my god, I’m in trouble,’” he stated.
The financial expert described fund managers as “financial doctors” who assess not just income levels but also emotional stability, obligations, and overall financial behavior before recommending investment strategies.
He emphasized that psychological preparedness is crucial, as it determines whether an investor can remain calm or panic under pressure.
“I test how well you sleep when you invest,” he added.
Beyond risk assessment, Akinwunmi stressed the importance of maintaining a balanced portfolio, warning against concentrating investments in a single asset class.
He explained that diversification across assets such as bonds, equities, and alternative instruments creates multiple opportunities for returns and reduces exposure to a single negative outcome.
The expert also highlighted how different asset classes respond differently to market conditions, noting that understanding these relationships is essential for managing overall portfolio risk.
He further noted that while fixed income investments offer predictability and stability, equities provide long-term growth, reinforcing the need for a strategic mix of assets.
As market uncertainties persist, Akinwunmi’s advice underscores the need for investors to look beyond financial capacity and focus on emotional discipline, positioning themselves for more resilient and informed investment decisions.
Triumph Ojo
