Three tips for weathering a market storm

When markets take a turn for the worse, it’s understandable that people worry about their investments.

Falling share prices become headline news and a glance at your investment account might leave you slightly queasy. It can feel like a time to panic, because everyone else seems to be. Money, as much as we may not want it to be, is often an emotional beast.

This is not the market’s first rodeo, and for most investors, a glance back will show us that it’s not ours either. Although there’s never a guarantee of what the future holds, when it comes to markets, history has shown consistent patterns that can help us through today’s turmoil. Here are three things you can do to protect yourself when the market takes a turn.

Gain perspective

From 2002 through 2021, the US stock market fell by at least 10% in 10 of the 20 years* . However, if you had invested £10,000 at the beginning of that period and not removed it, you would end with about £45,200 . And even though downturns occurred in 10 of those years, there were only three years where the end performance was negative.

If we stretch back to 1954, a decline of 10% or more has happened about every 30 months, and the average recovery time has been 234 days**.

Hindsight is always 20/20. When the numbers are laid out like this, it’s easier to feel more comfortable than watching the more short-term market movements. While now it seems obvious that we would recover from the covid-19 pandemic market crash and people would go back to normal life, or that Trussonomics wouldn't last, it’s harder to have that clarity at the time.

In the past, markets eventually picked back up. While this can sometimes be a long hike, in other instances the road to recovery has been relatively short. In 2022, the S&P 500 dropped 25.4% amid supply chain issues and other post-Covid stressors***. But by the beginning of 2024, it had popped right back up and enjoyed a year full of record highs.

Consider your investment horizons

If you are at the beginning of your investment journey and have no plans to withdraw money from your pot soon, a period of market turmoil can make very little difference to your plans. Downturns are expected but hopefully there is time left to recover any losses.

The story can be slightly more complicated if you had more immediate plans to withdraw investments, such as to buy a house or head into retirement. The best way to avoid running into trouble is to plan ahead. If you are nearing the point of using an investment, you may want to begin to transition it to a lower-risk strategy a couple years ahead, even if the market is steady at that point, to avoid any unexpected losses.

If you’ve already found yourself in this situation, there are still measures you can take. Consider if it’s better to push back your plans, for purchases such as buying a new house or car, until your investments can regain some of their value. If you need funds to carry you through retirement, consider what you hold in other assets such as cash and potentially draw on them first while your investments hopefully regain strength.

Avoid the constant checks

Over a long period of time, markets might move steadily upwards, but in a smaller time span prices can be jumpy.

Our investments are easily accessed through online accounts and even apps on our phones. But it doesn’t mean you constantly need to check them, and sometimes this can cause unnecessary anxiety if done frequently.

Emotions do not tend to be a good judge of markets, and even the most experienced investors aren’t immune from feelings playing into decision making. Simply, no one is going to get it right all the time. And sometimes in investing, the best decision can be sitting on your hands and making no decision at all.

*Source: Charles Schwab   
**Source: Capital Group   
***Source: LSEG