During times of market volatility, when headlines turn negative and portfolios dip, initial instinct is to act. But is it right?
The evidence suggests otherwise.
Analysis of global equity markets over the past 30 years shows that, despite significant periods of turbulence, the overall trajectory has been upward. The dot-com crash, the 2008 financial crisis, the pandemic selloff of 2020 – in every case, markets recovered. The critical variable in investor outcomes wasn’t market behaviour. It was investor behaviour: specifically, whether they stayed invested long enough to participate in the recovery.
Investors remaining in global equities for five years experienced negative returns only 11% of the time. Extend that to 20 years, and the likelihood of a loss was close to zero. Short-term outcomes are inherently uncertain; long-term outcomes are considerably more favourable.
This is a useful reminder of why aligning investment strategy to time horizon matters – not just as a consideration at the point of initial suitability assessment, but as an ongoing conversation with clients, particularly during volatile periods when short-term thinking is most tempting.
Helping clients understand their true time horizon – and stay committed to it – may be one of the most valuable things an adviser can do.
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