An increasingly volatile environment has resulted in investment diversification becoming key in order to boost financial resilience among Cypriot households and businesses, according to Dr Stella Mourouzidou Damtsa, CFA.

In a detailed piece of analysis, she stated that an increasing number of people are asking what they should do with their money.

“It’s a question being asked with growing frequency, from middle-income families to business owners, amid the volatile environment surrounding Cyprus,” she said.

“Ongoing geopolitical instability and a complex global monetary landscape are weighing on investor confidence and long-term decision-making. In times like these, financial resilience is no longer a luxury, it is a necessity,” she added.

She mentioned that Cyprus has experienced several sobering events, but two financial crises continue to shape investor psychology. Namely the Cypriot stock market bust in 1999, and the 2013 banking crisis.

“Families lost their savings. Trust in capital markets was severely damaged, some believe permanently,” she said. “Asset classes once considered risk-free migrated into higher risk classifications overnight. It wasn’t just a financial loss. It was an emotional and psychological trauma.”

“These events left a lasting conservatism bias in Cypriot households. Many abandoned equity markets entirely, while others clung to cash or placed disproportionate faith in real estate,” she continued.

Dr. Stella Mourouzidou Damtsa, CFA

“Today, despite mediocre deposit returns, Cyprus’ banking system holds excess liquidity, as households shy away from investment risk, even though their long-term financial futures and quality of retirement depend on building a portfolio suitable to their economic circumstances and investment profile,” said Damtsa.

Citing Eurobarometer data, she pointed out that financial literacy in Cyprus remains among the lowest in the EU.

Morever, the report highlighted that despite a low unemployment rate, many individuals are unable or unwilling to create investment portfolios that align with their financial situations.

This was attributed to either a lack of knowledge or a reluctance to seek professional financial advice.

“But clinging to the past is not a strategy,” Damtsa said.

“The typical Cypriot portfolio is highly concentrated in real estate. It feels tangible, familiar, and safe. But concentration risk, placing most of one’s wealth in a single asset class, can be dangerous,” she added.

“When interest rates began to rise, many mortgage holders were caught off guard, despite clear early signals. Government and bank interventions took place, which were labelled ‘economy support measures,’ but the truth is this. Interest rates have historically been much higher. What was needed was not intervention, but preparation,” she explained.

Moreover, she said that “understanding how interest rates move, borrowing only what one can comfortably repay, and building a small emergency reserve are not complex strategies”.

Instead, she said that “they are simple principles requiring a long-term plan and the discipline to follow it”.

“When taking out a mortgage, borrowers must consider multiple scenarios, including income loss, illness, or interest rate increases,” she said. “A variety of mortgage structures exist in the market, and selecting the right one requires foresight. At the same time, when emergencies arise, real estate assets cannot always be sold quickly or at their fair value.”

What is more, Damtsa stressed that “true financial resilience is not about avoiding all risks”, rather “it’s about achieving balance”.

“Diversification is not a privilege of the wealthy. Even modest allocations to government bonds, global equity funds, investment-grade corporate debt, or pension products can improve portfolio outcomes,” she stated.

“Diverting even part of one’s savings into a diversified investment mix can reduce overall volatility and improve liquidity,” she added.

She pointed out that while avoiding risk might seem like the secure option, recent times have shown us that in a high-inflation environment, a guaranteed outcome is actually a loss of purchasing power.

In other words, choosing not to take any financial risks means your money will buy less over time.

“And yet, many Cypriot households and businesses remain guided by fear – shaped by the scars of the past and inadequate financial knowledge – rather than by structured, forward-looking financial planning,” she warned.

“Market volatility is often temporary and recoverable, whereas permanent capital loss usually stems from poor planning or overexposure. Professional, ethical advice from licensed financial practitioners can help investors look beyond fear and toward long-term security,” she advised.

Furthermore, she said that “many Cypriot investors feel disconnected from global developments like EU–US trade negotiations or the recent geopolitical instability”.

“But Cyprus is far from insulated,” she cautioned. “Tourism, capital flows, energy markets, and international trade dynamics deeply influence our economy.”

She went on to explain that global events influence local interest rates, real estate prices, and investor confidence.

This is why it’s crucial to construct globally aware, macro-resilient portfolios. Such portfolios should include investments in global equities, clean energy, infrastructure, or technology sectors, as these tend to have a low correlation to domestic property trends.

“Without a solid foundation of financial literacy, Cypriot households and businesses remain vulnerable not only to economic shocks but also to misinformation, herd behaviour, and regret-driven decisions. Financial literacy is not only about knowing where to invest. It’s also about developing healthy financial habits,” she emphasised.

Quoting Warren Buffett, she added, “do not save what is left after spending; instead, spend what is left after saving”.

“In other words, we shouldn’t consume and then invest whatever is left, but the opposite. We save and invest first and then determine how much is available for consumption. This mindset shift is key to achieving lasting financial resilience,” she wrote.

“Encouragingly, financial education has recently been introduced in Cypriot schools. Small steps, like understanding compound interest, the power of diversification, or the risks of leverage, can protect future generations from repeating past mistakes,” she continued.

In her analysis, Damtsa also said that “history offers powerful lessons about the importance of planning, the consequences of inaction, and the value of resilience”.

“We cannot predict the next crisis, but we can prepare for it,” she added.

“With informed planning, diversified investing, and sound professional advice, Cypriot households and businesses can build a safer, more resilient financial future, one that honours the past while moving confidently forward,” she concluded.