Keep calm and stay invested

Stock market swings can be nerve-racking, but history shows us that they generally stabilise. Staying invested during periods of volatility may help you stick to your long-term plan.

It’s been a bumpy ride for investors recently, with concerns about interest rates, high inflation and geopolitical tensions (for example, Russia and Ukraine, or China and the US) leading to some dramatic swings in financial market performance.

Being an investor during times of turbulence is far from easy, even if you’re used to ups and downs. When markets move significantly, it can be challenging to ignore the noise and focus on the bigger picture.

Reasons for market turbulence

Markets sometimes go through periods where they rise or fall substantially. The causes can be difficult to determine but might include things like geopolitical turmoil or economic change. Here are some of the reasons why investment conditions have been choppy over the past two years:

Price rises

Inflation soared to historic highs across the world, with central banks responding by raising interest rates, which usually leads to slower economic growth. In the UK, our inflation rate fell to 8.7% in April, the first time it was below 10% since August 2022, but still a long way off the 2% target set by the government.

War in Ukraine

Russia’s invasion of Ukraine has also slowed global growth. The disruption to energy and food supplies pushed up inflation and increased the risk of recession.

Political uncertainty

The UK government’s mini budget in September 2022 proposed £45 billion of unfunded tax cuts. Concerns sent investors into a temporary panic, with the pound falling to a record low against the US dollar.

The COVID-19 pandemic

China’s zero-Covid policy last year saw whole regions and cities shut down, which had a significant impact on the country’s manufacturing sector. The restrictions led to supply chain issues, which affected global economic growth.

Reasons to stay invested

From wars to pandemics and global recessions, there have always been events throughout history to upset financial markets. No matter what happens though, the falls are generally followed by a period of recovery. But it can take time.

For example, when the S&P 500 index of US companies crashed during the financial crisis of 2007–08, it took around six years to recover its losses. More recently, despite the index crashing during the onset of the COVID-19 pandemic in 2020, it recovered ground quickly and reached several new highs in 2021.

When markets fall it can be tempting to sell to avoid further losses, but you may miss out when they eventually recover. As the old investment adage goes: “It’s about time in the market, not timing the market.”

Don't panic! Diversify

The first thing to remember when markets tumble is: don’t panic. While large falls happen every so often, once the issues that caused them are resolved, markets can recover quickly. These swings can be unsettling, so make sure you keep a clear head and avoid being distracted by any emotions. Speaking to a financial adviser at these moments can help give you some peace of mind.

Whatever your investment goals, it’s likely wise to maintain a diversified portfolio. By spreading your investments across different asset classes, geographical regions and industry sectors, you can attempt to reduce the risk that all your investments will fall at the same time.

Ready to invest?

Introducing Nutmeg, the digital wealth manager that's part of the Chase family. You can now open an account with Nutmeg (Opens in new window) and keep an eye on your investments from the Chase app – so you can see everything in one place.

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.

Nutmeg is authorised and regulated by the FCA in relation to certain investment services and restricted advice only. Chase is a trading name of J.P. Morgan Europe Limited. Nutmeg and J.P. Morgan Europe Limited are J.P. Morgan companies. Products provided by Nutmeg are not guaranteed by Chase. Before applying, you should consider if a Nutmeg account and its features are suitable for you and your investment needs.