When markets shake, the instinct to act can be your greatest enemy. Here’s what decades of history, and our advisers, say you should do instead.
We don’t need to tell you that the world has felt unsettled lately. Whether it’s geopolitical flashpoints, shifting trade relationships, or the relentless churn of 24-hour news, periods of global uncertainty have a way of making investors feel as though they ought to be doing something, moving money, reducing risk, waiting on the sidelines. It’s a deeply human instinct. But it’s one that history consistently shows costs investors dearly.
At Fairstone, we work with you around a financial plan built on your long-term goals, for you, your family, and the future you’re working towards. Reacting to short-term market movements by stepping away from that plan can significantly undermine your chances of achieving the outcomes you’ve set out to reach.
Looking back over more than five decades of global equity markets, one truth stands out above all others: significant downturns happen regularly, and they are regularly overcome. In 31 out of the last 54 calendar years, global equities, as measured by the MSCI World Index experienced a decline of 10% or more at some point during the year. In 13 of those same years, the decline reached 20% or beyond.
That sounds alarming. But here’s what those same five decades also show: across that entire period, the average annual gain within the year has significantly outpaced the average annual loss. Stocks have, on average, fallen roughly 15% at their worst during a given year, and risen around 23% at their best. The direction of travel, over time, has consistently been upward.
One of the most persistent myths in personal finance is that cash is a “safe” option during uncertain times. In the very short term, cash certainly won’t fall in value the way equities can. But the price of that safety, measured over any meaningful investment horizon, is substantial.
Consider this: investors who shifted into cash whenever market volatility (as measured by the CBOE VIX index) rose above its historical average, and moved back into stocks only once calm returned, would have reduced their returns since 1990 by nearly 80% compared to simply staying invested. Even a more disciplined version of this approach, only retreating to cash when volatility hit the very top 5% of historical readings, would have still cut returns by close to half.
There’s another dimension to the “safe” cash argument that often gets overlooked: inflation. Over any short period, cash and equities perform similarly when it comes to outpacing the cost of living, both beat inflation roughly 60% of the time over a single month. But stretch that to three years, and stocks win three quarters of the time against cash’s roughly half. At ten years, that gap widens further: equities beat inflation around 87% of the time. Over twenty years, the historical record is essentially perfect for equities, 100% of rolling periods, versus just 64% for cash.*
*Figures refer to US cash deposits.
In other words, cash doesn’t protect your purchasing power the way many people assume. Over the long periods that matter most for retirement savings and wealth building, stocks have a track record that cash simply cannot match.
When investors panic and markets sell off sharply, they rarely discriminate between businesses that deserve to fall and those that don’t. Strong, well-capitalised companies with solid long-term prospects get repriced alongside weaker ones, creating what experienced investors recognise as mispricing opportunities. Volatility, viewed through a longer lens, is not just risk to be managed. It’s often the mechanism through which patient, long-term investors are rewarded.
This is a perspective our advisers at Fairstone bring to every conversation about market disruption. Rather than treating volatility as a signal to reduce exposure, we help clients understand how to frame these moments within the context of their overall financial plan, and, where appropriate, whether turbulence might actually present an opportunity to strengthen their position.
One of the genuine advantages of working with an expert financial adviser during periods like this is perspective. It’s far easier to make calm, rational decisions about your investments when you have someone alongside you who has navigated many cycles before, who understands your specific goals and timeline, and who can separate the noise of today’s headlines from what actually matters for your financial future.
At Fairstone, our investment advice is built on evidence, not emotion. We combine a deep understanding of long-term market behaviour with a careful, personalised approach to each client’s circumstances, because your goals, your timeline, and the financial plan built around them are what matter most. Market events come and go; your long-term objectives don’t. That’s why we’re not here to offer generic reassurances, we’re here to give you tailored, expert guidance that keeps you anchored to what matters, even when others are veering off course.
If recent market volatility has left you uncertain about your investments, our advisers are here to help you think clearly and act wisely. Expert, personalised financial advice, built around your goals.
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