The news about the conflict in the Middle East has been deeply troubling.
While the violence is distant from our daily lives, its wider economic impact will be felt globally.
Indeed, global events have always triggered short-term market movements. But while volatility can be unsettling, history shows that such periods are typically temporary and are a normal feature of the market’s journey towards long-term growth.
Read on to find out about the importance of staying calm in a crisis and how an evidence-based approach to investing can help.
Market dips are common, and exiting has historically been a mistake
Market downturns can feel unnerving when you’re in the middle of them, but when you look at the bigger picture, the long-term trends tell a different story.
Significant dips aren’t rare, and data from Schroders shows that drops of 10% or more have been more common than not in recent decades, with declines of 20% also appearing relatively regularly.
For comparison, since the onset of the recent conflict, the FTSE 100 dropped by just over 10% before beginning to stabilise, though there may be more volatility to come. So, while movements like this can be unsettling, they’re not out of the ordinary.
However, when markets fall, it’s natural to want to exit to limit further losses. You can read more about why that is in our recent article on the behaviour gap in investing.
But the issue with exiting amid a downturn is that it can turn a temporary loss into a permanent one, and you may miss out on the recovery when it comes.
For instance, Schroders’ research also looked at every major market downturn since the late 19th century and found that exiting for cash during each would have led to longer recovery times than staying invested.
During the Great Depression, investors who moved into cash after the initial 25% drop in 1929 had to wait until 1963 to get back to where they started, while those who stayed invested recovered by 1945. And in the 2008 Financial Crisis, investors who remained in the market would have recovered by 2013, while those who exited would still be recovering today.
So, while selling can feel like the cautious move in the moment, it has often made the road to recovery longer rather than shorter.
The principles of evidence-based investing are key during downturns
Market volatility is hard to navigate and remaining resilient is easier said than done, but the key principles of an evidence-based approach can help keep you steady.
These include:
- Keeping focused on long-term trends rather than short-term movements
- Making sure your portfolio is diversified.
Despite considerable fluctuations along the way, markets have historically trended towards growth in the long term.
The graph below shows the growth of $1,000 invested in the US market between 1926 and 2026 alongside significant global events and recessionary periods.
Source: iShares
As you can see, although the path wasn’t always smooth, the overall direction was upward, and that $1,000 investment would be worth nearly $18 million now.
Even though fluctuations are normal, there are strategies you can adopt to help reduce the effects of dips on your portfolio, which is where diversification comes in.
If too much of your wealth is concentrated in one area, you’re more exposed when that part of the market struggles. Spreading investments across different regions, sectors, and asset classes can help offset losses in one area with gains in another.
For example, the table below shows the ranked annual performance of major global indices between 2016 and 2025.
Source: JP Morgan
Predicting which markets will perform well based on previous years is all but impossible. For example, in 2024, the S&P 500 was the strongest performer, but then it was the weakest the following year.
So, taking a balanced approach and diversifying your holdings across regions can help you to build a steadier, more stable path to long-term growth.
Get in touch
A financial planner can help you stay focused on your long-term plan when markets are volatile.
Rather than trying to predict the right moment to buy or sell, they can help ensure you remain resilient and take a more consistent approach built around time in the market.
They can also review how your investments are structured to make sure they are suitably diversified, and you’re not overly concentrated in any single area.
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.
