As much as you may wish otherwise, accurately predicting market movements is near impossible. You don’t have a crystal ball, after all.
Markets around the world have already experienced some volatility in 2025, with US equities declining sharply in April as investors reacted to a marked shift in US international trade policy.
When fluctuations such as these occur, it’s entirely natural to feel concerned since your hard-earned money is on the line. In an attempt to protect your wealth, you may feel the desire to react impulsively.
Despite this, acting on knee-jerk reactions could ultimately harm the long-term value of your portfolio.
Instead, staying calm, maintaining a diversified portfolio, and focusing on your long-term strategy may be the wiser course of action – continue reading to find out why.
Market movements are far more common than you may think
Before you make any rash decisions in response to a dip or climb in the market, it’s important to remember that volatility happens far more frequently than you may expect.
In fact, declines of 10% or more – commonly referred to as “market corrections” – occur quite regularly.
Schroders reveals that global stock markets, as represented by the MSCI World Index, experienced declines of 10% or more in 30 of the past 52 years. In the past decade, this includes:
- 2015
- 2016
- 2018
- 2020
- 2022
Even larger drops of 20% or more have also happened in 13 of those 52 years, with the graph below illustrating some of the largest market declines in the MSCI World Index since 1972.
Source: Schroders
Despite these periods of significant downturn, markets have delivered strong long-term returns.
According to Curvo, the MSCI World Index has actually produced an average compound annual growth rate of 7.58% between January 1999 and February 2025.
This suggests that downturns are almost inevitable, but by staying the course and being patient, your money may still grow, meaning you can remain on track to achieve your long-term financial goals.
The market’s worst-performing days are often followed by its best
There’s a good chance you’ve previously heard the advice: “Time in the market, not timing the market”.
While this is easy to say, it can be challenging to follow in practice, as the fear surrounding market decline may tempt you to make emotionally driven decisions.
Yet, historical data suggests that some of the market’s worst-performing days are often followed by its best.
Take the chart below, which shows the 20 best trading days (represented by orange bars) and worst days (represented by blue bars) since 1 January 1980.
Source: Vanguard
As you can see, the market’s best and worst days often occur in close succession, meaning that if you were to sell your investments during a downturn, you could miss out on the potential subsequent recovery that follows.
Missing just a few of these best-performing days can have a significant effect on the value of your portfolio, too.
Hargreaves Lansdown reveals that the FTSE All-Share index has offered a total return of 82.4% over the last 10 years. If you’d missed the 10 best trading days during this period, your returns might have shrunk to just 20.3%.
For reference, a £10,000 investment could have grown to £18,240 if you had remained invested over this 10-year period. But if you’d exited the market in fear during a downturn and missed those 10 best-trading days, your investment would only have been worth £12,300 (before accounting for charges or inflation).
While past performance doesn’t indicate future results, these figures do show the potential risks of attempting to time the market.
Instead, if you maintain discipline and resist the urge to react impulsively, you might be able to benefit from periods of recovery and continue working towards your long-term goals.
Diversification could help you keep a cool head
Perhaps one of the more effective ways to manage risk and stay calm during turbulent market conditions is to diversify your portfolio.
Diversification involves spreading your investments across various asset classes, sectors, and geographical regions, reducing the effects of volatility in a single market.
Not only could investing in a wider range of markets lower your exposure to individual downturns, but also increase your chances of benefiting from opportunities elsewhere.
The asset quilt below shows the performance of various stock market indices from around the world between 2013 and February 2025.
Source: JP Morgan
It would be almost impossible to predict which markets will perform well or badly in any given year.
If, for example, you had invested solely in the S&P 500, you might find that your returns this year have not been as strong as that of a diversified portfolio that also included the FTSE All-Share.
By spreading your investments out, you can give yourself a better chance of offsetting losses in one area with gains from another.
While this doesn’t entirely eliminate risk, it can reduce the emotional toll that often comes with watching your investments fluctuate in value, and may yield better long-term growth.
Get in touch
We could help you remain calm during periods of volatility, and ensure your portfolio is adequately diversified based on your goals, time frame, and attitude to risk.
To find out more, please use our search function to find your nearest Verso office, email us at contact@versowm.com, or call 020 7380 3300.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
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.