Turn on the news, scroll through your phone or glance at a newspaper, and you’ll find plenty of reasons to worry about your investments. Economic uncertainty. Rampant inflation. Overseas conflicts. Geopolitical tensions. There’s always something that makes you wonder if now’s the time to sell everything rather than wait for calmer waters.
It’s completely natural to feel this way. When the markets drop and the headlines scream disaster, our instincts tell us to protect what we have. The urge to sell can be overwhelming, especially when you see your portfolio value falling. But decades of market history teach us that acting on that fear almost always makes things worse.
The gap between successful investing and poor returns often comes down to your behaviour, not your investments. While you can’t control what the markets might do, you can control how you respond.
Understanding why staying invested matters, especially when every instinct tells you to run, could be the most valuable investment lesson you’ll ever learn.
The markets’ remarkable resilience through history
The financial markets have an extraordinary ability to recover from a crisis. They’ve survived and thrived despite events that seemed catastrophic at the time. It’s a pattern that’s repeated throughout history. Consider what the markets have endured:
- Two World Wars
- The 1970s oil crisis that quadrupled prices overnight
- Black Monday in 1987, which crashed the stock markets
- The dot-com bubble bursting in 2000
- The 2008 financial crisis that threatened the global banking system
- The COVID-19 pandemic
Each felt like the end of the world for investors living through them.
UK investors have faced their own trials. Black Wednesday in 1992 saw interest rates hit 15% and the pound crash out of the European Exchange Rate Mechanism. The Brexit vote in 2016 caused immediate market turmoil, with predictions of long-term economic disaster. Then came the pandemic in 2020, bringing the fastest bear market in history as the FTSE 100 fell over 30% in just 33 days.
Yet here’s what happened next. After Black Wednesday, UK markets went on to deliver strong returns through the 1990s. Post-Brexit, despite ongoing uncertainty, markets reached new highs. After the COVID crash, the FTSE 100 recovered most of its losses within months, while the global markets powered to record levels.
The numbers tell a powerful story. An investor who put £10,000 into UK equities at the start of 1990 and held through every crisis would have seen their investment grow to over £40,000 by 2024, despite living through multiple ‘end of the world’ events.
Those who sold during the scary moments and tried to time their re-entry typically captured only a fraction of these returns. The takeaway here is that the markets have faced uncertainty before and will face it again. The key is not to panic.
The hidden cost of market timing
Trying to time the market feels logical. Sell before it falls, buy before it rises.
If only it were that simple.
The reality is that successfully timing the market requires you to be right twice, knowing when to get out and when to get back in. Even professional investors rarely achieve this consistently.
Timing the market can prove costly because the best and worst days tend to cluster together.
Markets don’t rise or fall in straight lines. The most powerful rallies often happen during the scariest times, precisely when most investors are too frightened to participate.
However, missing just a handful of the best days can devastate your long-term returns. Market analysis by JP Morgan showed that £10,000 invested in global equities over 20 years (2003-2023) would have grown to almost £65,000 if it stayed fully invested, but would have dropped to £29,000 if it missed the ten best days. Missing the 30 best days would have seen the returns drop to £9,000, meaning you’d have actually lost money.
There are also the costs to consider. Every trade incurs fees. Selling investments outside tax-sheltered accounts can trigger capital gains tax. Getting back in often means paying more than you sold for. These costs compound over time, creating a significant drag on your returns.
The emotional cost might be the highest of all. Once you’ve sold, deciding when to buy back can be agonising.
Waiting for a 10% drop? What if it never comes?
Buying back after a 5% rise? What if it falls again tomorrow?
This paralysis often means missing out on years of potential growth while waiting for the perfect moment that never arrives.
Volatility is normal, not dangerous
Volatility and risk often get confused, but they’re fundamentally different.
Volatility measures how much prices bounce around. Risk is the chance of permanent loss.
A volatile investment that swings wildly but trends upward over time might be uncomfortable to own, but it isn’t necessarily risky over the long-term.
Think of volatility like the British weather. Some days are sunny. Others pour with rain. Day-to-day, the changes can be dramatic and unpredictable. But over years and decades, patterns emerge. Spring follows winter. Summer brings warmer days. Daily volatility doesn’t usually change the long-term trends.
The markets work in a similar way. Since 1926, the US stock market has experienced average annual swings of about 20% from high to low. That’s normal volatility, not a crisis. Despite this bumpiness, the markets have delivered positive returns in roughly three out of every four years.
The markets efficiently price in uncertainty. When trade tariff threats emerge or political tensions rise, prices quickly adjust to reflect these risks. By the time you read about them in the news, they’re already reflected in market prices. This efficiency means the markets often recover quickly when events don’t materialise or prove less damaging than expected.
For long-term investors, volatility creates opportunity rather than danger. Regular investing during volatile periods means you automatically buy more units when prices are low and fewer when they’re high. Pound-cost averaging smooths out the volatility over time.
Your investment timeline matters more than today’s headlines
When do you need the money? It’s a simple question that cuts through most investment anxiety.
If the answer is ‘in 10 years or more’, then today’s market movements matter far less than you think.
Your investment timeline changes everything about how you should view market events. A 25% market drop can be catastrophic if you need the money next month. But it’s an opportunity if you don’t need it for 20 years. It isn’t down to positive thinking. It’s the mathematical reality, based on historic market behaviour.
Longer investment timelines allow you to harness the markets’ most reliable feature, their long-term upward trajectory. Despite endless short-term chaos, the long-term direction has been consistently positive.
Regular investing amplifies this advantage. Contributing monthly to your pension or ISA means you’re buying through all market conditions. When they fall, your contributions buy more units. When they rise, your existing units grow in value. Over decades, this disciplined approach smooths out volatility and helps you build substantial wealth.
Your age should influence how you think about volatility. A 30-year-old with 35 years until retirement can afford to take more risks than a 60-year-old nearing retirement. But even retirees typically need their money to last 20-30 years, so retaining some growth assets is essential, despite short-term volatility.
The real danger isn’t market volatility. It’s letting short-term events derail your long-term plans. Abandoning a well-thought-out strategy because of a few negative headlines in quick succession is like selling your house because it rained during your summer barbecue. It might be temporarily uncomfortable, but it doesn’t change the long-term value.
Building a portfolio that helps you sleep at night
A well-constructed portfolio is like a financial shock absorber, smoothing out the bumps while keeping you moving toward your goals.
Diversification is the key, not putting all your eggs in one basket, no matter how safe that basket seems.
True diversification means spreading your investments across different asset classes that behave differently in various conditions. When shares fall, high-quality bonds often rise as investors seek safety. When the UK markets struggle, the international markets might thrive. When traditional assets disappoint, alternatives like property or commodities might shine.
Asset allocation, how you divide money between shares, bonds and other investments, is your first line of defence against uncertainty. A portfolio with 60% shares and 40% bonds will be less volatile than one with 100% shares, though it might grow more slowly over time. The right mix depends on your investment timeline, goals and ability to tolerate fluctuations.
And keeping some cash provides both practical and psychological benefits. A cash reserve covering six to 12 months of expenses means you’ll never have to sell your investments at the worst possible time to cover emergencies. Psychologically, knowing you have this buffer makes it easier to stay invested during volatile periods.
How can Glenrose Financial Planners help?
Successful investing isn’t about avoiding volatility. It’s about harnessing market growth over time while managing risk appropriately. The investors who succeed aren’t those who time the markets perfectly, but those who stay invested, diversified and disciplined through all the uncertainties that the markets inevitably bring.
Working with a financial adviser provides crucial support during such uncertain times, and that’s where Glenrose can help. We can help you develop and maintain a tax-efficient investment strategy tailored to your needs. Beyond our technical expertise, we also offer perspective and emotional support to help you stay disciplined when everything feels chaotic.
We’ve guided countless clients through previous crises and can provide reassurance based on our experience, not just theory. So, if you’re ready to explore your options and learn more about how we can support your investment journey, book an appointment today.