Market volatility can be a real test for investors. And recent global events will have tested the resolve of even the hardiest.
Alongside continuing global conflicts, President Trump’s tariffs, introduced in April, sent shockwaves across markets. Further announcements, pauses, and alterations have only added to a complex and evolving situation.
It’s easy to see why you might be nervous about your investments, but be sure you don’t act rashly or emotionally.
Instead, read on to discover the seven most common mistakes investors make in volatile markets and how to avoid them.
1. Watching and doomscrolling news every day
Once we bought a daily newspaper or perhaps watched the evening news on TV. Today, we have 24-hour access not only to news but to speculation, misinformation and minute-by-minute updates, however minimal.
While it’s good to stay informed, immersing yourself too deeply in the news can cause anxiety and send your stress levels rocketing. In turn, this can lead to emotional knee-jerk decisions about your investments, rather than the calm approach you’d be wiser to take.
Try to set yourself a limit on how much “news” you absorb each day, perhaps restricting yourself to checking a respected source morning and evening.
Remember that your investments are long term so daily check-ins are never advisable, whatever headlines you read.
2. Forgetting that volatility is inherent to investing
The word “volatile” conjures up all kinds of explosive and unpredictable images, but it’s important to remember that volatility is an inherent aspect of investing.
Not only that, but periods of volatility are built into your plan. It’s the reason your investments are long term. That means you don’t need to avoid or outwit them. Instead, stay calm and patient and allow your funds to outlast them.
3. Panic selling and missing out on the recovery
Panic is rarely, if ever, a constructive emotion. Watching your investment value drop when markets are tough isn’t easy, but selling immediately only compounds your losses. You’re selling at a low price and not giving your investments time to ride the storm back into recovery.
So, stick with a calm approach. Volatility doesn’t last forever, and staying invested in the long term is almost always the best course of action.
4. Ignoring the market’s general upward trend
History tells us that time and again, markets fall. And time and again, they rise. According to Schroders, 10% drops happened in 30 of the 52 calendar years before 2024 (taking world stock markets, as represented by the MSCI World Index).
Falls of 20% occurred in 13 of the 52 years. Despite these drops, the US market delivered strong average returns over that same period.
5. Allowing biases to skew your decision-making
Even the most level-headed investor has subconscious biases driving their decision-making. Understanding what yours are can help you circumnavigate them and make the right financial decision for you.
Some common biases include:
- Confirmation bias – You might be led by assumptions rather than evidence, based on preconceived beliefs. This bias could see you only seek out information that supports these beliefs while ignoring evidence that goes against them.
- Loss aversion – Gains are good, and losses are bad. As humans, we generally feel the pain of losses harder than we enjoy the buzz of a gain. This bias could mean you try harder to prevent losses than make gains, ultimately limiting your opportunity for returns.
- Herd mentality – It can be tempting to assume that other people know better, especially when they move in a pack. But fads and trends are unlikely to be aligned with your goals and circumstances, so try to stay focused on your own goals.
Bias can be a tricky thing to identify and even harder to overcome. Working with our team of market experts here at Globe IFA can help you develop an investment strategy driven by data, not emotion.
6. Moving to cash and staying there
When you sell investments in a panic, your fund will often sit in cash, but this is never going to be the most lucrative option.
Rather than benefiting from a market recovery, your fund will be at the mercy of inflation, which could start to erode the real-terms value of your wealth.
7. Failing to revisit your asset allocation
Volatility is usually short-lived, and your fund is diversified to spread risk. But that doesn’t mean you shouldn’t check in with your asset allocation now and then to ensure it still aligns with your risk profile.
Changes to market conditions or your own circumstances could mean your allocation shifts out of alignment. Check in to ensure it still aligns with your goals, attitude to risk and capacity for loss, and we can help you make changes if necessary.
Get in touch
Please email hello@globeifa.co.uk or call us on 020 8891 0711 to discuss how Globe IFA’s expert financial advisors can help you manage your long-term financial plans.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
