Market ups and downs can feel unsettling—especially when headlines are loud and news is always just a tap away.
Owning a company’s stock means you’re entitled to a share of its future profits. These profits might come as dividends or through an increase in the stock’s value. But the amount and timing of those returns are never guaranteed. Markets rarely move in a straight line.
When news breaks, investors react by reassessing what they think a company is worth. This affects the stock price. Good news can raise expectations for future profits, while bad news can lower them.
Recent market swings—mainly due to uncertainty around U.S. economic policies—remind us that investing in stocks isn’t always smooth sailing. At the time of writing, U.S. markets are around the same level they were before Donald Trump was elected. There’s a lot of uncertainty right now, but that’s always been the case.
Markets absorb new information quickly—faster than most people can react. That’s why it’s generally wise to accept current stock prices as fair. Trying to outsmart the market is tough. While many people are confident in their abilities, research shows that even professionals often get it wrong.
So what can investors do? The best option is usually to stay invested, ride out the ups and downs, and understand that short-term turbulence is part of the journey. There are no shortcuts—patience and discipline are essential.
In uncertain times, it helps to go back to core investing principles. Making rushed decisions can lead to poor, or even disastrous, outcomes. The following charts can offer some reassurance to all long-term investors.
Reminder 1 – Avoid trying to time when to be in or out of markets
It’s tempting for investors to try and ‘wait out the storm’. But research[1] shows that very few—professionals included—can consistently time the market well. Trying to guess the best times to be in or out can be risky and expensive.
The graphic below shows just how costly poor timing can be.
Source: Albion Strategic Consulting. Albion World Equity Index (https://smartersuccess.net/indices). Jul-07 to Dec-24. Daily returns in USD.
Reminder 2 – The market falls from a peak every single year
Stock market drops happen every year. The recent global falls are normal in the big picture. Staying invested during these “bumps in the road” isn’t always easy—but it’s essential.
No one can predict what markets will do next. Why? Because market moves are driven by new information, which is random by nature, and by how investors react to it.
To highlight this point, the chart below highlights the annual return alongside the intra-year market fall.
Source: Albion Strategic Consulting. Data: Vanguard Glb Stk Idx $ Acc
Looking at US stock markets specifically given the recent headlines, where investors are currently experiencing most hurt, shows exactly the same story.
Source: Albion Strategic Consulting. Data: Vanguard Institutional Index I.
Reminder 3 – Volatility is already factored into your financial plan
Volatility is part of investing; it simply measures how “bumpy” the road can be and it is always present in markets.
When recommending investments, we factor in this natural market’s ups and downs. Occasional, sometimes prolonged, market declines are normal and expected, and all of this results in returns varying, especially when looking back at the “average”.
While losses can’t be avoided completely, they can be reduced by:
- Diversifying across global companies
- Holding high-quality bonds in the right proportion
Making sensible assumptions about the future helps set realistic expectations and improves your chances of long-term success—mainly by avoiding poor decisions driven by emotion.
The following chart shows the annual return of the global stock market (the orange dots), the average annualised return via the dotted line and then a + or – 5% divergence from the average:
Source: Albion Strategic Consulting. Albion World Stock Market Index. 1985-2024. Returns in USD.
Things may worsen before they get better, but they may not. Only with the benefit of hindsight will anyone know for sure.
General Investment Risk Warnings
Please remember the value of your investments and any income from them can go down as well as up and you may get back less than the amount you originally invested. All investments carry an element of risk which may differ significantly.
If you are unsure as to the suitability of any particular investment or product, you should seek professional financial advice. Tax rules may change in the future and taxation will depend on your personal circumstances. Charges may be subject to change in the future.
Past performance is not indicative of future results and no representation is made that the stated results will be replicated. Portfolio performance data are for illustrative, educational purposes only and do not represent live client portfolios.
[1] E.g. Dai, Wei and Dong, Audrey, Another Look at Timing the Equity Premiums (October 11, 2023). Available at SSRN: https://ssrn.com/abstract=4586684 or http://dx.doi.org/10.2139/ssrn.4586684