Navigating Market Volatility

4th April 2025

We understand that recent market fluctuations may be causing concern. With the S&P 500 experiencing a fair degree of volatility this year, it's natural to question the best course of action. However, we want to reassure you that maintaining a long-term perspective is crucial during these times.

David Booth, founder and chair of Dimensional Fund Advisors, recently shared valuable insights in the Financial Times that resonate with our investment philosophy. He reminds us that market uncertainty is not a new phenomenon. History is replete with periods of significant volatility, including the 2008 financial crisis and the rapid market decline during the onset of the COVID-19 pandemic.

Key Takeaways from the FT Article:

Market Recovery is Consistent: Despite feeling like "the end of the world" at the time, markets have historically recovered from every major crisis. The pattern of recovery is remarkably consistent.

Booth notes that "each crisis can feel like the end of the world when it happens, yet the pattern of recovery remains remarkably consistent. Over 50 years of working in finance has consistently shown me two things: we cannot predict the future, but despite that uncertainty, markets have eventually bounced back. There are no guarantees, of course, but that is the way it has worked historically. When markets swing wildly, our instinct is to act to protect ourselves. Some investors respond by pulling their money out until things calm down. But this instinct typically results in lower returns than if you did nothing".

The Cost of Market Timing: Trying to time the market by pulling out during downturns can severely impact long-term returns. Missing even a few of the market's best days can drastically reduce your portfolio's growth. As Booth points out, a hypothetical $10,000 investment in the Russell 3000 index (US Stock market Index) shows a dramatic difference in returns if the best weeks or months are missed. During the Covid-19 pandemic, the US stock market dropped 34 per cent in just 23 days - faster than ever before. Yet within a year, the market had not only recovered but risen 78 per cent from its lowest point. People who sold during the panic missed one of the strongest recoveries ever. Each uncertain period brings its own unique challenges, making it more difficult for investors to keep faith. Current concerns surround issues like technology, global tensions and government debt - all of which are valid concerns. But history shows us that markets have overcome every previous 'unprecedented' challenge.

• Focus on Long-Term Goals: It's essential to differentiate between thoughtful adjustments to your portfolio based on life events and emotional reactions to short-term market noise. Your investment strategy should align with your long-term financial goals, not the daily headlines.

  
  

• Uncertainty as Opportunity: Accepting uncertainty is a necessary part of investing. Higher expected returns are the "reward" for taking on market risk.

  
  

• Disciplined Approach: A disciplined approach helps you handle uncertainty without freezing up.

Why This Matters to You:

We recognise that market volatility can be unsettling. However, history demonstrates that staying invested through these periods is often the most effective strategy. As Booth illustrates, an investor who remained invested in equities since 1970 would have seen substantial growth, despite numerous economic and political challenges.

Our Commitment to You:

We are committed to helping you navigate these uncertain times with a disciplined and informed approach. We believe in building diversified portfolios that are designed to withstand market volatility and achieve your long-term financial objectives.

We encourage you to reach out to us with any questions or concerns you may have. We are here to provide guidance and support as we navigate these market conditions together.

This newsletter is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Please consult us before making any investment decisions.