Managing our response to uncertainty

In the decades after the Cold War, people called this a VUCA environment – one characterised by volatility, uncertainty, complexity, and ambiguity. Some say we've moved beyond VUCA into a BANI world – Brittle, Anxious, Non-linear, and Incomprehensible. The change reflects how managing uncertainty has evolved. In the past, big disruptions like wars, financial crises, or technological revolutions were typically discrete events, which had defined beginnings and endings, allowing people and markets to adapt, recover, and return to some form of normalcy. The 2008 financial crisis, while severe, followed historical patterns of market collapse and recovery.

Today's uncertainties are different. They overlap and interact in ways that make their impacts harder to predict or contain. Things like artificial intelligence and climate change aren’t single, time-defined events – they are constantly influencing markets, productivity growth, and industrial concentration. For example, the semiconductor shortage that began in 2020 wasn’t only about the pandemic closing down factories but about inefficient supply chains and political decision-making. The effects, however, were profound, affecting tech company valuations and reshaping investment opportunities across sectors even to this day.

These aren't temporary disturbances – they’re structural shifts reshaping our reality. The old playbook of building a portfolio by diversifying your investments and keeping emergency savings, while essential, isn’t enough. When disruptions are continuous rather than episodic, resilience becomes more important than prediction. It's less about trying to time markets or anticipate specific events and more managing uncertainty and risk about building financial structures that can absorb and adapt to ongoing change.

How do you manage your wealth journey in this reality? It starts with getting clarity in at least three areas. As always, we recommend discussing this with your financial adviser before you decide on a path forward.

1. Understand what your risk appetite and tolerance looks like

Every investment carries risk, however small. But when people say investing is "risky," they often conflate equity market volatility and speculation. Volatility is the natural movement of market values up and down over time – a normal and necessary part of financial markets. But speculative risks (or worse, gambling) means taking unnecessary chances with your money without a sound strategy or understanding of the investments involved. With investing, you need to take on risk in order to benefit from returns, however it is important to balance how much risk you can take on given your return aspirations. Also, not all risk is the same. Your investment risk appetite should take into account factors like:

• Investment timelines – How long can you invest your money without needing to access it? Generally, longer time horizons allow for a higher risk tolerance, depending on how loss-averse you are.
• Income stability and financial responsibilities – If your income is stable, you may be able to take on more significant risks, in the form of growth assets, with potentially better returns over the longer-term.
• Future goals – What kind of returns are you looking for? Sometimes, being too conservative is a riskier strategy than accepting some volatility, especially if you miss your long-term financial goals. If you keep everything in low-risk assets like cash, you risk losing out to inflation.

2. Build a resilient portfolio

In a highly disruptive world, the real risk isn't volatility; it's the possibility of permanent capital loss or missing out on transformative opportunities. While uncomfortable, market fluctuations and volatility investing over sufficient time are often less dangerous than the slow erosion of wealth by being too conservative in a world that changes so quickly.

As an example, resilient portfolios can contain a mix of short-term financial goals, medium- and long-term financial planning and investments. In the short term, the focus might be on preserving capital and protecting wealth; in the medium term, there’s often a measured approach between taking on risk and maintaining stability; and in the long term, your strategy might take a decade-long (or more) view of performance, ride out equity market volatility over time to get the full value of compound growth.

When your portfolio considers these strategies, success is less about predicting the change you think will be decisive for growth and more about benefiting from change itself at different points in your wealth journey.

3. Protecting the growth of wealth

Much like investments, traditional life insurance was designed for a world of episodic risks with clear triggers and outcomes, one where the primary financial risk was often the death of a breadwinner. Today, things are different. We’re living longer but facing more chronic health conditions. Career paths are also less linear, with people changing jobs more often and working beyond the traditional retirement age. Medical advances mean that conditions that used to be fatal are now survivable, but these often come with significant financial implications.

That’s why modern life insurance is biased toward living benefits, offering more policies that help you financially cope with big life events like being diagnosed with a severe illness or disability. This is fundamental to your wealth protection strategies, covering you for lost income during recovery and the knock-on impact on your monthly expenses, investment contributions and everyone who depends on your earnings.

But there’s a timing imperative here because as your health changes with age, getting cover becomes more expensive and sometimes exclusionary. Just like you wouldn’t wait until after a market crash to diversify your investments, you shouldn’t wait until a health event happens to get protection. The best time is to get cover while you’re healthy and have the broadest scope of protection at the lowest premiums.

The world is driven by forces that cannot be measured; markets and economies are ‘animal spirits’ which will always have an element of surprise, change and uncertainty. Ensuring that we manage our emotional responses without reacting to heightened market volatility is important so that we can reap the rewards of staying invested through cycles. It is important that we understand our behavioural biases and “money story” and how these might influence our decision making. Working with an adviser as a partner in this “behavioural navigation” and investing in being prepared for different eventualities is key. The odds of success fall deepest in your favour when you mix a long-term time horizon aligned with your goals and risk appetite with a flexible pathway and commitment to staying on the course to get there.