The volatility will pass

Investor uncertainty is escalating due to ongoing tariff developments and the largest two-day US stock drop since the onset of COVID in 2020. Many investors remain concerned about where this situation is headed and what the market’s response will be. 

While we can’t predict the direction of stocks, history shows that high volatility, like the recent surge in the VIX (volatility) index above 40, is often short-lived. In 12 instances since 1990, the VIX dropped by about 10% within 21 days and around 30% within 100 days. Market turbulence tends to subside quickly.

It’s important to note that market volatility is a sign of a well-functioning market. Market prices are continuously responding to changes in expectations and new information. So, even while the news headlines may be concerning, investors have good reasons to stay invested because prices are always set to provide positive expected returns. 

Remember - our approach is built for the long haul, unlike the media's short-term focus. The newspapers, TV and social media are going into meltdown over the latest ‘crisis du jour!’ They’re saying the stockmarket is in free fall and we’re headed into a full-on bear market. They’re worried about the next few days, weeks, and months. We, and our clients, are - long term investors, focused on the next few decades. Did you know that a couple aged 60 has over a 50% chance that one of them will live to 90? That’s three decades of funding a lifestyle. Why worry about short-term market fluctuations when your plan is built for long-term success?

So, your strategy should remain the same:

1. Create a detailed financial plan and cash flow forecast. 
2. Keep sufficient cash and bonds to fund the next few years’ expenses.
3. Allocate the majority of your retirement fund to shares in the world’s best companies via low-cost index funds.
4. Create a highly diversified portfolio investing in thousands of stocks and bond across the globe to weather all markets.
5. Sit back, relax and live your life whilst your plan and investment strategy work smarter for you.

Our attached investment analysis from Timeline Portfolios highlights how markets have historically recovered after downturns. The charts are a goldmine of insights, beautifully visualised from over 100 years of market data, and demonstrate that long-term investors have always come out ahead.

If you find yourself obsessing over daily fluctuations, try expanding your view to years or even decades. A long-term perspective often paints a very different picture—especially with a solid, evidence-based strategy in place.

Here are some key points.

For investors still accumulating wealth: There’s never a perfect moment to invest. Global markets are almost always in flux, and the current environment—shaped by trade tensions and economic uncertainty—is no exception. The key is to invest consistently and stick with your strategy. The average calendar annual total return of the Global Equities Index for the period 1970-2024 was a tremendous, 12% pa.

£1,000 invested in 1970 in a basket of global equities would be worth a staggering £263,000 as at Dec 2024. You don’t need to pick the winners or time the market. A well-diversified portfolio is all you need. Sit back, relax, and let your well-diversified portfolio work for you. Life is to be enjoyed.

Finally remember that capital markets don't care much for politics - it pays to stay invested. History shows us that over the past 100 years we have had 24 different UK prime ministers yet £1 invested in 1925 in a basket of UK equities would be worth £11,605 as at Dec 2024.

Never forget - the declines are temporary, and the long-term advance is permanent.

A robust, evidence based investment strategy, with a well thought out financial plan remains your best hope of securing a dignified and comfortable multi-decade retirement. 

The media has a different agenda and time horizon. Ignore them and stick to your plan.

In these uncertain times, a solid financial strategy is more crucial than ever. Don’t wait for the next market dip—contact us today to discuss how we can help you build a resilient, long-term investment plan.

This information is not meant to constitute advice, a recommendation or offer of any services, products or investment strategy nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professionsal regarding individual circumstances before making investment decisions.

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