If you've been watching your investments lately, you've probably noticed some ups and downs. Perhaps you've felt a flutter of concern when values dip, or a sense of relief when they recover.
These reactions are entirely natural but understanding how markets actually work can help you stay calm and focused on what really matters: your long-term financial goals.
Markets have always moved in cycles
They rise, they fall, and they rise again. This isn't a flaw in the system – it's simply how markets function. Think of it like the seasons: winter always follows autumn, but spring inevitably arrives.
Since 1984, the FTSE 100 has delivered an average annualised return of just above 8%, far exceeding the average inflation rate of around 3% over the same period. Yet this growth hasn't been smooth – it's been punctuated by rises and falls along the way.
The temptation during downturns is to do something - anything - to stop the discomfort. You might consider selling your investments to "cut your losses" or moving everything to cash until things "settle down".
But here's the challenge: timing the market is extraordinarily difficult, even for professionals. Missing just a handful of the market's best days can significantly impact your returns.
Consider what happened during the 2020 pandemic. Markets fell sharply in March, with many investments losing 30% or more of their value in a matter of weeks. Investors who sold in panic locked in those losses.
Those who stayed invested saw markets not only recover but reach new highs within months. The same pattern has played out repeatedly throughout history, whether during the 2008 financial crisis, the dot-com bubble, or numerous other market events.
This doesn't mean market falls are pleasant or that concerns aren't valid. It's your money, and you have every right to feel anxious about it. But perspective is powerful. A five percent drop feels significant when you check your portfolio weekly, but it becomes just a small blip when viewed over 10 or 20 years.
The bigger picture
A solid investment strategy is always designed with these fluctuations in mind; it accounts for the reality that markets move both up and down.
Modern, ‘diversified’ portfolios ensure that you’re invested across different types of investments precisely because they don't all move in the same direction at the same time. When one area struggles, another may hold steady or even grow.
The bigger picture is about your life goals, not daily market movements. Are you investing for retirement in fifteen years? For your children's education? To build financial security for your family? Or do you have more of a short term goal?
These goals won’t have changed just because markets have had a difficult month or quarter. But they’re what’s important to focus on when it comes to investing.
Regular reviews with your adviser are the best time to assess whether your investments remain on track. Between these reviews, try to resist the urge to constantly check valuations or make reactive decisions based on headlines. Market commentary can be alarmingly dramatic, but your personal situation and long-term plan are what truly matter.
This article reflects our understanding of current legislation, which may change. While we can provide information, we can’t give you advice and therefore we recommend you seek professional advice before making any financial decisions. Investments can go down as well as up, and you may not get back the amount invested. Tax treatment depends on individual circumstances and available reliefs may vary.
The resources on Your Wealth can help you find a financial adviser in your local area.