When markets start falling, it feels instinctive to act.
You watch the headlines turn negative. Prices drop day after day. Uncertainty rises. And the natural reaction is simple: “I should sell now, sit in cash, and buy back in later when things settle.”
On the surface, it sounds sensible. Responsible, even.
But in reality, this is one of the most damaging habits an investor can develop.
Recent events around tensions involving Iran offer a perfect example of why.
The Illusion of Control
When geopolitical conflict escalates, markets tend to react quickly—and often sharply.
We saw this recently. As tensions rose, global markets dipped. Investors feared escalation, disruption to oil supply, and broader economic fallout. Selling pressure increased.
But then something familiar happened.
Markets stabilised. Confidence crept back. Prices recovered—far quicker than many expected.
Those who sold in the panic were left with a difficult decision:
- Buy back in at higher prices
- Or wait… and risk missing even more of the recovery
This is the trap. Timing the market isn’t just about getting out—it’s about getting back in correctly too. And that second decision is often even harder than the first.
We’ve Seen This Story Before
This isn’t a one-off. It’s a repeating pattern.
Take the market crash during COVID-19 market crash. In March 2020, markets fell at record speed as the world shut down.
The outlook looked bleak:
- Global recession
- Businesses closing overnight
- Entire industries paralysed
Many investors sold, believing they could re-enter when things became clearer.
But clarity never comes with a bell ringing at the bottom.
Instead, markets rebounded—fast. Within months, major indices had recovered a large portion of their losses. By the following year, many were at all-time highs.
Those waiting for “certainty” missed one of the strongest recoveries in modern history.
The same was true during the Global Financial Crisis.
Markets fell dramatically. Fear dominated. Selling felt rational.
Yet from the depths of 2009 began one of the longest and most powerful bull markets ever seen.
Again, those who exited struggled to re-enter at the right time—if they re-entered at all.
The Hidden Cost: Missing the Best Days
Here’s where the real damage happens.
Stock market returns are not evenly distributed. A significant portion of long-term gains comes from a surprisingly small number of days—often clustered around periods of volatility.
If you’re out of the market during those days, your long-term returns can be severely reduced.
Consider this:
- Miss just a handful of the market’s best days over a decade, and your returns can drop dramatically
- Many of those best days occur very close to the worst days
- In other words, if you sell during downturns, you are highly likely to miss the rebound
This is what makes market timing so dangerous. It’s not just about avoiding losses—it’s about unknowingly sacrificing gains.
Market Falls Are Normal—Not Exceptional
Another key point that investors often forget: market declines are not rare events.
They are a feature of investing, not a flaw.
On average, markets experience intra-year declines every single year. Even in strong years, it’s common to see drops of 10% or more at some point.
These falls feel uncomfortable in the moment, but historically they have been temporary.
Trying to avoid every decline is like trying to drive a car without ever slowing down—you’ll end up causing more harm than good.
Why Timing Feels So Tempting
Market timing plays directly into human psychology.
- We want to avoid pain (losses)
- We want to feel in control
- We believe we can act “just in time”
But markets don’t reward emotion—they punish it.
The reality is:
- News is already priced in faster than most investors can react
- By the time you feel compelled to act, the market has often already moved
- Re-entry decisions are clouded by fear, doubt, and second-guessing
So what feels like a protective move often becomes a long-term mistake.
The Double Decision Problem
Selling is only half the equation.
If you move to cash, you now face two critical decisions:
- When to sell (already difficult)
- When to buy back in (arguably harder)
Most investors get at least one of these wrong. Many get both wrong.
And even if you get the exit right, missing the re-entry point can completely negate any benefit.
A Better Approach: Build, Review, Hold
If market timing doesn’t work, what does?
The answer is far less exciting—but far more effective.
It starts with having the right investment strategy in the first place.
That means:
- A portfolio aligned with your goals
- The right level of risk for your circumstances
- Sufficient diversification to withstand shocks
Once that’s in place, the focus should shift from reacting to markets… to managing behaviour.
Check your strategy regularly:
- Does it still match your objectives?
- Has your time horizon changed?
- Are you taking more risk than you should?
If the answers are still aligned, the most powerful action is often inaction.
Holding Firm Is a Strategy
Doing nothing during volatility can feel uncomfortable. It may even feel irresponsible.
But in many cases, it’s exactly the right thing to do.
Markets have always recovered from crises:
- Wars
- Pandemics
- Financial collapses
- Political uncertainty
Each time feels different. Each time feels more serious than the last.
And each time, long-term investors who stayed invested have been rewarded.
Selling during a downturn rarely feels like panic.
It feels like prudence.
It feels like you’re protecting your wealth.
But more often than not, what you’re actually doing is locking in losses and risking missing the recovery that follows.
The uncomfortable truth is this:
You don’t lose money by staying invested through volatility—you risk losing it by trying to avoid it.
The real edge in investing isn’t timing the market.
It’s time in the market.
Risk warning:
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.
