Navigating market volatility: Staying calm and focused

Market volatility can stir up a lot of emotions, making it easy to feel anxious about your investments. It's common to worry about whether you'll meet your financial goals, leading to impulsive decisions driven by fear or impatience.

But it’s important to be aware of your emotions and biases in times of uncertainty, ensuring that short term thinking and actions don’t harm your long-term goals.

This is where professional guidance can make a significant difference. By working with a financial adviser, you can develop a robust investment strategy that helps you stay focused on your long-term objectives, providing reassurance and clarity amid market fluctuations.

The value of professional advice

When markets are turbulent, seeking advice from a financial adviser can be incredibly valuable. They can help you stay focused on your long-term strategy and avoid making decisions based on short-term market movements.

Confidence to stay invested

Whether you're new to investing or have years of experience, market fluctuations can be unsettling. The theory of "loss aversion" suggests that we feel the pain of losses more intensely than the pleasure of gains. This can lead to panic-selling, which often results in actual losses rather than just paper losses.

But what if you get it wrong? The graph below highlights how mistimed decisions can drastically affect your investment returns. For example, if you had invested in the MSCI World at the beginning of 2005 and stayed invested, your investment could have grown by 385% by 2025.

Source: Morningstar December 2024

However, if you missed just the 30 best days in the market during that 20-year period, your investment would have only grown by 40%, and if you had missed the 90 best days your investment returns will have fallen by -66%. This demonstrates the importance of staying invested through market fluctuations to achieve long-term growth.

Long-term focus

When markets are volatile, it's natural to feel anxious and start focusing on short-term movements. Daily or weekly fluctuations can seem overwhelming, making it tempting to react impulsively. However, if your financial goals are years away, such as saving for retirement, these short-term changes are less significant in the grand scheme of things.

Imagine you're saving for retirement, which is 20 years away. The daily ups and downs of the market might feel stressful, but over such a long period, these fluctuations tend to even out. Historical data shows that long-term investments are more likely to yield positive returns, despite short-term volatility.

Preparing for the future

Uncertainty about the future can cause anxiety, but a financial adviser can help you prepare for various scenarios. They may use tools like cashflow modelling to help forecast your financial future, and can build in modelled scenarios for market downturns and inflation.

However, it is important to recognise that modelling is only guide, and in uncertain times regularly reviewing your plan with your financial adviser can help you stay calm and provide assurance for a well planned future.

Professional support

If you're worried about how market volatility might affect your financial goals, speaking to an experienced financial adviser can provide peace of mind. They can help you navigate through uncertainty and keep you focused on your long-term objectives.

SPW can build you a personalised plan to help give you financial peace of mind. What's more, the meetings you have with us before you are presented with your personalised financial plan are free of charge, book a free consultation today to see how we could support you.