3 data-driven reasons to stay calm during periods of stock market volatility
Political elections and geopolitical conflict typically cause stock market volatility. Read three reasons to stay calm during fluctuations and how we can help.
2024 has been a record year for elections. The World Economic Forum reports that more than 50 countries have headed to the polls this year, with more than 2 billion voters exercising their democratic rights by having their say.
Here in the UK, Labour’s landslide victory on 4 July marked a sea change for the country, with the Conservatives having held power since 2010.
Meanwhile, the closely contested and unpredictable US election on 5 November saw the return of Donald Trump to the White House.
One common byproduct of political change is stock market volatility. Markets are controlled largely by the behaviour of investors; if investors are confident and optimistic, this can lead to upticks in market performance, whereas if they’re worried or unsure, market values can experience a downturn.
If you have an investment portfolio that is in line to support your financial goals later in life, you might be understandably concerned about the effects of recent elections, along with other geopolitical events, on your portfolio.
Does that sound like you? If so, keep reading to find out three data-driven reasons to stay calm during periods of market volatility.
- Markets typically recover more quickly than you’d imagine
When you see the value of your investments go down, it’s highly understandable that you might panic.
After all, it looks as if you’re “losing” the hard-earned wealth you have carefully invested over a number of years.
But the truth is, allowing yourself to panic might lead to selling when markets are down – and this could hamper your progress towards your long-term goals. Whereas, keeping a cool head and remaining invested might be of better service to your financial growth in the long run.
Let’s take a look at the market sell-off that happened in August 2024. Fears of a recession in the US, combined with an increase in Japanese interest rates and worries of tech stock overvaluation, led to a downturn – the worst so far this year – on 5 August.
But as you can see from the below graph, world markets almost instantly bounced back from the crash on 5 August.
Source: Halifax
If you had sold off shares on 5 August for fear of a long-term crash, you would have missed out on the subsequent gains, harming your investment portfolio’s long-term progression.
Although this is just one example, it may help to apply this philosophy across the board: staying calm and remaining invested could enable your investments to grow over the long-term.
- Missing out on the market’s best days could damage your progress
Visual Capitalist conducted a study that looks at how missing out on the market’s best days could be of detriment to an investor’s portfolio.
Indeed, if you had panic-sold investments on 5 August, you could have missed out on the gains made on 6 August, which was the best day for global markets so far in 2024, the Guardian reports.
Doing this repeatedly over time could stagnate the growth of your investments – or even cause you to make a loss.
The below table shows the performance of a $10,000 investment made in the US S&P 500 between 1 January 2003 and 30 December 2022.
Source: Visual Capitalist
If the investor had chopped and changed their strategy by selling on bad days and, in turn, missing the market’s best days, their progress would have been much less impressive.
This is evident from the figures above: remaining invested throughout the 20-year period would have turned their $10,000 into $64,844. By missing only 10 of the best days in the market, their progress would have more than halved to $29,708. Worse still, missing 60 of the market’s best days – that’s just three days a year – would have produced a loss, leaving the value of their investment at $4,205.
As you can see, letting market volatility affect your investment decisions could lead to loss-making choices over the long term.
- Many investors regret panic selling
While everyone occasionally lets their emotions get the better of them, doing this where your investments are concerned might lead to regret later.
This was common in 2022. Still feeling the full effects of the pandemic and worried by the war in Ukraine, many investors panic-sold investments, fearing that their losses would become more severe and that markets would crash over the long term.
Sadly, a study by Magnify Money confirms that of the investors that sold shares between April 2021 and April 2022, 40% regretted it later. Despite this regret, 70% of participants said that current events affect their financial decisions on the whole.
Today, investors are standing at a similar crossroads. In 2024, historic political elections and geopolitical conflict have caused market volatility that could be increasing your financial anxiety.
Take the US election for example. Held on 5 November 2024, the race between Kamala Harris and Donald Trump was polling very closely in the run up to the election – nobody could truly predict its outcome. As an investor, you might have felt worried by this uncertainty, selling off US holdings in fear of a market downturn occurring.
However, after Trump was announced as the 47th president of the United States, Market Watch reports that US stocks “staged an epic rally”, closing at record highs on Wednesday 6 November.
This outcome might have shocked you, but it proves that panic-selling during uncertain periods could only lead to disappointment later.
Speak to your Kellands financial planner about forming a goal-oriented investment strategy
Here at Kellands, we specialise in making your financial goals a reality. Whether you’re a lifelong investor or building a portfolio from scratch, our financial planners are qualified to help you make data-driven choices.
Email us at hale@kelland.co.uk, or call 0161 929 8838.
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.