Same Risks, Different Reasons
Volatility is nothing new in markets, but the reasons for it almost always are.
Periods of market volatility can feel unsettling. When headlines are dominated by negative sentiment and dramatic forecasts, it’s easy for investors to question their approach. However, long-term investment success often depends less on avoiding volatility and more on understanding it, accepting it, and staying the course.
Recent turbulence in global markets, particularly in the United States, has brought these concerns back to the fore. Major US stock indices are trading at levels not seen since before the election of Donald Trump and other markets are also suffering due to Trump’s bold new tariff policy, the likes of which we have not seen from an advanced economy in modern times.
Uncertainty remains elevated, as it so often does, with the latest fluctuations reflecting investor reactions to economic policy changes and speculation about their longer-term effects. These are certainly unprecedented times, but investors would do well to remember that unprecedented times abound. Even at the turn of this very decade a global pandemic posed an existential threat to our lives, how we worked, and to global supply chains. Looking back on this time in the markets now, the pandemic seems to have made almost no difference to longer term market performance.
Return of a typical world equity index over the past 10 years
Return of the MSCI ACWI index- 10 years to March 2025 Source: www.msci.com
Despite the discomfort that can accompany such episodes, market volatility is not a sign of dysfunction. Rather, it is a natural feature of the investment landscape.
What Causes Markets to Move?
Owning shares in a company represents a claim on future cash flows – profits that may be returned to shareholders via dividends or reflected in share price appreciation. These future earnings are inherently uncertain in both their size and timing. As new information becomes available, traders reassess the prospects of companies and adjust their view of fair value accordingly. This ongoing process of adjustment is what drives price movements on a daily basis.
Importantly, financial markets typically price in new information extremely quickly. By the time a news story reaches the public, the implications have often already been reflected in asset prices. This makes it exceptionally difficult – even for seasoned professionals – to consistently predict market movements or capitalise on timing strategies.
This was case in point on the 7th of April, where a single post on Elon Musk’s ‘X’ (formally Twitter) created a buzz that there would be a 90-day delay to Trump’s tariffs. This caused the S&P 500 to surge in value by $3.6 trillion, or 8.5%, in just 34 minutes, after which the White House called ‘fake news’. Markets crashed again and finished the day around where they had started.
Such rapid volatility represents a huge danger to both traders, who attempt to profit from intra-day market movements and investors who are not mentally prepared for the rocky times that are par for the course when investing. It is likely that many lost a lot of money this day. For sensible investors, the S&P finished the day just 0.23% lower than it started, what happened in the hours preceding can be written off as an interesting, but ultimately irrelevant, blip[1].
Trump has since revealed that there will indeed be a 90 day pause on tariffs on all countries except China, to which markets have again responded both rapidly and positively.
Market Declines Are Common
Rapid market pullbacks can certainly be alarming but declines occur regularly in response to new information. Granted, the recent US tariff announcements represent an unusually huge amount of new information compared to most news cycles, rapid repricing of assets is to be expected. This speed shows how efficient, and therefore difficult to beat, markets are.
Global markets fall from a high point every single year, regardless of whether they end the year up or down. These intra-year declines are part and parcel of investing, and history shows both that they are far from abnormal and that those who stay invested are rewarded.
The largest market falls and year-end return of a typical global equity index
Figure: Every Year, the Market Falls – Data: Vanguard Glb Stk Idx $ Acc
Understanding this historical context helps reinforce the value of patience and long-term thinking during turbulent periods.
Timing the Market: An Elusive Strategy
Periods of volatility often reignite interest in trying to “time” the market – exiting during downturns and re-entering once conditions improve. However, research consistently shows that attempting to do this successfully is extremely difficult[2].
Missing just a handful of the best-performing days – which often occur close to the worst days – can have a dramatic impact on long-term returns. Case in point, the S&P 500 rallied a whopping 9.4% when Trump announced there would be a 90 day pause to tariffs. Investors who got spooked and left the market would have missed out. Below the effects of missing out can be seen clearly.
The returns on £1 invested in a typical world equity portfolio when uninvested for the most profitable periods from mid-2007 to the end of 2024.
Source: Albion Strategic Consulting. Albion World Equity Index (https://smartersuccess.net/indices). Jul-07 to Dec-24. Daily returns in USD.
While market timing may appear logical in theory, very few investors – professional or otherwise – have demonstrated a reliable ability to do it in practice.
Volatility Is Already Accounted for in BpH Wealth Financial Plans
Volatility is expected when investing; it is a known and integral part of financial markets. Any sound investment strategy takes this into account. Assumptions around expected returns, asset allocation, and time horizon are built with the understanding that markets will experience declines from time to time – some of them severe.
Global diversification across asset classes and sectors, along with a thoughtful allocation to property and high-quality bonds, is designed to help cushion portfolios during more turbulent periods. These measures cannot eliminate risk entirely, but they do help to mitigate the impact of market shocks.
Globally diversified portfolios are ambivalent to sources of return. If trade wars do continue to escalate and if it does emerge that the US has shot itself in the foot, this may not be great news for investors in the shorter term, but our portfolios are well positioned to benefit from any eventual winners too.
Maintaining adequate cash reserves to cover planned expenditure and to draw on when needed is also an integral part of the investing journey. Doing this can seem frustrating in times where markets seem to be reaching new highs every day, but those who stay disciplined are likely to benefit hugely in rockier periods. For more on cash reserve strategies, our article can be found here.
More importantly, realistic assumptions and disciplined implementation increase the likelihood of reaching long-term financial goals, while also reducing the risk of behavioural missteps during volatile markets.
Maintaining Perspective
No one can predict precisely how long a downturn will last, or what the catalyst for recovery might be. For those with money to invest, a healthy attitude to take to a dip is that assets are cheaper than they were yesterday, meaning investing more could achieve better results than if investing the previous day. This is known, what is not known is what will happen tomorrow.
Conditions may deteriorate further before they improve – or may stabilise more quickly than expected. The market is a complex, yet efficient, system; future developments are shaped by information not yet known.
For now, at least, a temporary reprieve has been granted by Trump’s 90-day pause. What happens next is anyone’s guess, but those with a systematically invested portfolio can take solace in the graph below.
Stock markets have prevailed despite world events
Source: Albion Strategic Consulting. Albion World Equity Index (https://smartersuccess.net/indices). Data in GBP from 01/01/1975 to 04/04/2025.
When looking at the graph above, it is easy to see why history suggests that those who remain focused on long-term objectives – rather than reacting to short-term noise – are more likely to achieve better outcomes.
Risk Warnings
This article is distributed for educational purposes for UK residents. It should not be considered investment advice, an offer of any security for sale nor a recommendation of any particular security, strategy, platform or investment product. This article contains the opinions of the author but not necessarily the Firm. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
[1] Stocks Just Rallied 9% on ‘Fake News’ of Tariff Delay – Business Insider
[2] Dai, Wei and Dong, Audrey, Another Look at Timing the Equity Premiums (October 11, 2023). Available at SSRN: https://ssrn.com/abstract=4586684 or http://dx.doi.org/10.2139/ssrn.4586684
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