Last year delivered some of the strongest market returns seen in a decade, although the journey was far from smooth.
Periods of significant volatility tested investor discipline, particularly early in the year following the introduction of US tariffs. During times like these, maintaining discipline can be challenging.
However, investors who stayed focused on their long-term strategy rather than reacting to short-term movements were rewarded as markets recovered and delivered strong annual returns.
2025 offers an important reminder of the benefits of an evidence-based approach to investing that prioritises long-term trends, diversification, and data over emotional decisions driven by market noise.
Read on to find out what 2025 can teach you about investing.
Global markets dipped amid trade tariffs and other challenges, but quickly recovered
The start of 2025 proved challenging for investors.
US markets fell sharply after the introduction of the Chinese AI model DeepSeek, which triggered a widespread sell-off of US chipmakers. Volatility continued as Donald Trump repeatedly threatened new trade tariffs, eventually implementing them on 2 April, known as “Liberation Day”.
This resulted in market declines worldwide. In the UK, the FTSE 100 dropped around 8% in just a few days, while the Dow Jones in the US fell nearly 10%.
Yet despite the early turbulence, markets proved remarkably resilient. By July, both the FTSE 100 and the Dow Jones had recovered and reached new all-time highs.
By the end of the year, the FTSE 100 recorded its largest annual gain since 2009, finishing with returns of over 21%, according to a report in The Guardian. US markets also ended the year on a high note, with the Dow Jones gaining 13.4% and the S&P 500 delivering 16.4%.
Evidence-based investing focuses on long-term trends and diversification, and 2025 supports this approach
In 2025, the early market downturns followed by a strong recovery and standout returns exemplified the values of an evidence-based approach to investing.
There are two key principles to this approach:
- Focus on long-term trends over short-term movements
- Maintain a diversified portfolio.
You can read more about the evidence-based approach in our previous article on the topic.
Long-term focus
Building an investment strategy around your long-term goals allows you to look beyond short-term market noise and focus on the bigger picture.
History shows that, despite setbacks along the way, markets have tended to grow over time. Periods of volatility and decline are an inevitable part of investing, yet they have consistently been followed by recovery and growth.
Market falls are also far more common than you may think. Research by Schroders found that over the past several decades, double-digit declines have occurred more regularly than not, which shows that downturns are a normal feature rather than an exception.
Reacting emotionally by exiting the market during these periods can be costly, as doing so may lock in temporary losses and cause you to miss out on the rebound that often follows.
Portfolio diversification
Portfolio diversification involves spreading your investments across different asset classes, regions, and sectors rather than relying too heavily on any single area. By spreading risk in this way, weaker performance in one part of your portfolio can be balanced by stronger returns elsewhere.
This approach can help smooth investment performance over time and reduce the impact of market fluctuations. A well-diversified portfolio not only supports more consistent long-term growth but can also make it easier to stay disciplined and avoid reactive decisions during periods of uncertainty.
A financial planner can help you create a portfolio built on evidence-based principles
A financial planner can help you develop an investment strategy built around evidence-based principles, rather than short-term events. They can also provide guidance and perspective during periods of uncertainty, such as those seen in early 2025.
By taking time to understand your goals, risk tolerance, and time horizons, a financial planner can tailor a plan based on your needs and their market expertise.
They can diversify your portfolio to help ensure it is designed to weather periods of turbulence and is well-positioned to benefit from growth.
With their support, your investment decisions are more likely to be driven by evidence and your long-term goals rather than emotion or market noise.
To speak to a financial planner, get in touch.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals 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.
