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It's been a bad month.

Despite rallying last week, stock markets across the world have tumbled hard of late, as ever-deepening uncertainty rattles the financial system. And Canada, it seems, may now be leading the way down. Worries over a global recession have sent oil prices tumbling, taking the commodity-heavy S&P/TSX composite index with it.

The TSX even dropped below 9,000 points earlier this month, the lowest it's been since December 2004. At one point it flirted with its biggest monthly decline since January 1919.

But despite the dramatic selloff, shell-shocked investors should focus their attention elsewhere, argues York University professor Moshe Milevsky. He maintains risk should be framed and explained in terms of "the probability of regret."

Look at it this way: when you have a project to complete, you try to be realistic about how long it will take and what it will cost. And, if you're wise, you'll also map out a worst-case scenario along the way.

In other words, before heading for the hills in the face of this market downturn, take the time to calculate the odds of whether you'll actually end up ahead by locking in your losses and opting for a safe, risk-free solution like T-bills or GICs.

It all comes down to how long you plan to be around and how closely you monitor your affairs.

Historically, over a one-year time horizon, there's roughly a 35-per-cent chance that a diversified portfolio of stocks will underperform the rate of return from a safe bank deposit, Mr. Milevsky reports.

In other words, if you're going to need the money 12 months from now, there's a 35-per-cent chance that you'll regret taking the stock market route.

But what about 10 years out? In this case, the probability of a diversified portfolio of stocks producing a shortfall is closer to 11 per cent. Remember we're not talking simply about a return of principal here – you're looking to beat that bank deposit, the risk-free investment alternative.

As your investment time horizon increases, the probability of regret decreases exponentially, so much so that it drops close to a negligible one per cent over time – that's a 99-per-cent success rate if your time horizon is 30-odd years, less than most people's working lives.

But right now at least, thanks to the worst financial crisis this country has seen in decades, most people are having trouble seeing much beyond next week. So, stop looking so closely.

As much as they should be, most of our financial decisions aren't based on where we're going to end up, but what's happening in the moment. Psychologists refer to this thought process as 'narrow framing' – even if we're saving for retirement and have a long investment horizon, it's today's headlines that always seem to grab our attention.

Narrow framing is hazardous to your wealth. It can lead you to actually overestimate the risk you're taking, especially when so many investors have discovered they're much more sensitive to losing money than they may have ever realized.

The narrower your frame, the more likely your brain registers losses and prompts you to react. And, since individual stocks are more likely to sustain dramatic losses than a diversified portfolio, they tend to stick out like a sore thumb to a narrow-framed mind. Though fertilizer giant Potash – one of the companies that powered the market during the commodities boom – offers the most recent evidence, Ottawa investors need to hark back to the heydays of Nortel and JDS to feel that gut-wrenching sensation again.

This myopic effect has been widely demonstrated in various experiments. A few years ago, subjects were given the distribution of monthly returns on a stock portfolio, while others were shown only annual returns.

And although the way things are presented shouldn't make any difference in decision-making, those shown monthly returns were much less keen to invest in stocks.

The most plausible explanation for this is that on a monthly basis, stock setbacks are more frequent, spooking those who worry about potential losses.

Those of us who focus too much on day-to-day fluctuations will overestimate stock-market risk, allocating too little of our money to stocks and potentially coming up short in retirement.

Unless you've really been kidding yourself about your risk tolerance or are going to need the money a lot earlier than you'd planned, this is not the time to bail out.

Gradually reassess your asset allocation, by all means, but missing out on the higher returns that stocks offer could really cost you over the long term – the only term that really matters.