Why global crises trigger emotional decision‑making
When markets fall sharply, or geopolitical crises dominate the news, two behavioural forces tend to kick in:
1. Loss aversion
People feel the pain of losses far more intensely than the pleasure of gains. In unsettling moments, this makes it feel sensible to get out of the market “until things calm down”, as your inner voice may be telling you. However, markets often recover far more quickly than investors expect.
2. Our desire for control
During geopolitical crises the world can feel unpredictable. Making a rapid investment decision – such as reducing your holdings of riskier, more volatile assets – can create a false sense of control. But reacting to headlines in the short term can undermine long‑term planning.
The danger of selling at the wrong time
It's natural to want to avoid losses. But by selling during a downturn, you could end up permanently locking in losses. Markets are forward‑looking, and they often rebound before the headlines turn positive.
Recoveries often begin quietly
Periods of stress – from conflicts to recessions – tend to create an initial market shock followed by a period of adjustment. As we've seen this year with the conflict in Iran, markets rarely move in straight lines. And the worst outcomes many people fear are often less likely than you assume.
If you sell in times of stress, you may well be out of the market when sentiment stabilises. Historically, this has typically happened without fanfare and often sooner than expected.
Why timing the market doesn’t work
It’s widely accepted that successfully timing the market is incredibly difficult – even for professionals. This is because:
- Markets move quickly and often overshoot in both directions.
- News flows can reverse immediately – long before investors have time to react.
- Some of the strongest positive days in the market occur in the middle of crises, not after them.
- Missing just a handful of strong days can significantly weaken long‑term performance.
All of the above are good reasons for maintaining long-term allocations – including regular savings – in challenging times. Furthermore, regular investing helps investors take advantage of lower prices while also removing the emotional burden of trying to pick the right moment.
Long‑term thinking in a world of short attention spans
At Rathbones, we strongly believe that playing the long game will help our clients invest well, so they can live well. Our investment process is designed to build in resilience over the long haul. Portfolios are deliberately designed to be ready for geopolitical flare‑ups.
Our annual update on geopolitical risk and markets may provide more information to help you stay focused on the long term rather than the news cycle.
How long‑term investing works
Markets reward patience
Over time, markets tend to rise as economies grow, companies innovate, and profits compound.
The impact of geopolitical events tends to be short-lived
Events such as geopolitical conflicts can affect commodity prices or expectations for inflation and interest rates in the short run. This year, we’ve seen an example of this with the conflict in Iran. But even major wars haven’t stopped markets from delivering positive returns over the long run. For example, six months after the beginning of the Iraq War in 2003, US S&P 500 stock index was 19% higher. Going further back, even after the Japanese attack on Pearl Harbor brought America into the Second World War, the US market recovered within the following year. See our piece on geopolitical risk and markets for more details.
Holding the right mix of assets can cushion portfolios
Having the right mix of investments remains one of the strongest tools available to help investors stay calm and weather any turbulence. For example:
- Shorter‑dated bonds, which tend to be less sensitive to interest rate volatility
- Index‑linked bonds, which can provide inflation resilience
- Quality companies, with strong balance sheets that can withstand uncertainty
- Diversifying assets, which can move in a different direction to equities when shocks occur
Knowing that your portfolio contains stabilising elements like these can make it easier for you to maintain confidence during periods of stress.
Market corrections can be an investment opportunity
Market corrections can feel uncomfortable, but they can also create chances for long-term investors. When share prices fall, strong companies may become better value, offering opportunities to invest with greater confidence in future growth.
Taking a calm, steady approach during periods of volatility can help turn short-term uncertainty into a chance to strengthen a long-term plan.
How to avoid emotional decision-making during a crisis
Understanding our behavioural biases helps us avoid the mistakes they encourage. Here are four principles that support long-term resilience:
1. Expect volatility – it’s part of investing
Geopolitical shocks and market swings have always been part of the investment landscape. The key is not letting them derail you from your long-term financial plans.
2. Focus on what you can control
Uncertainty can’t be removed – but it can be managed.
Diversification and tactical positioning – altering your mix of investments to respond to present events – can help to cushion portfolios, So, too, can continuous risk assessment. These tools reduce the impact of unpredictable events without requiring investors to predict the events themselves.
You can’t control headlines or market swings, but you can control:
- How regularly you invest
- How diversified your investments are and how consistently you stick to your long-term plans
3. Don’t check the news too often
The more you look, the more likely it is that you’ll make a knee-jerk decision. An investment manager or financial adviser can help you take the emotion out of investing and make sense of it all.
4. Rebounds can be swift and downturns can create opportunity
Conditions can change quickly. Shares in high-quality businesses can become cheaper during a market downturn. If you’re a regular investor, you may benefit from 'pound‑cost averaging' – where each pound purchases more when prices are lower.
What happens if you stay invested through a crisis?
Our experience points to a consistent pattern:
- Investors who stay the course tend to recover quicker than those who sell.
- Investors who increase contributions during downturns often come out even further ahead.
- Long‑term strategies with quality and diversification at their core, may deliver smoother outcomes, even in volatile periods.
It’s sensible to remain vigilant. But we firmly believe that sticking with long term strategies and well‑constructed portfolios remains the best way to buckle in and get through the turbulence.
Your financial adviser can help you weather the storm. Reach out to your usual Rathbones contact or fill out our enquiry form below to get started. We’re here to help.
