It can feel as though every bout of market volatility is unprecedented – the latest headline, the newest crisis, a situation nobody’s seen before. In reality, markets have moved sharply up and down many times over the past two decades, for many different reasons, and looking at how investors have tended to react in the past is often more useful than trying to predict what happens next.
What we mean by market volatility
Market volatility simply describes how much the value of assets moves up and down. When volatility is higher, prices swing more sharply than usual, in either direction. It can be driven by all sorts of things – geopolitical tension, economic data, shifts in investor sentiment, or changes in interest rates.
2026 has been a good example of this in practice. The continuing Israel/US-Iran conflict, and its effect on oil prices and shipping through the Strait of Hormuz, has contributed to periods of noticeably choppier markets this year, with knock-on effects for businesses and consumers well beyond the region. It’s a reminder that world events and market movements are often closely linked, even when the connection isn’t immediately obvious.
Volatility isn’t new, even if the headline is
Look at the performance of any major market index over the long term and you won’t see a straight line. Prices fluctuate constantly, with sharper moves at various points along the way. Over the last twenty years or so alone, investors have lived through the 2008 financial crisis, the sudden shock of the Covid-19 pandemic in 2020, and now the market swings linked to the Middle East during 2026 – each felt significant and uncertain at the time.
Past performance is never a guarantee of what happens next, but history shows that markets have tended to recover from downturns given enough time. Following both the 2008 financial crisis and the 2020 pandemic crash, for example, major indices went on to reach new highs within a few years, even though both episodes felt severe while they were unfolding. For most investors, staying the course rather than reacting to short-term movements has generally proven to be the more effective approach. That said, high volatility can still tempt people into decisions that don’t actually serve their long-term plan.
It’s also worth remembering that volatility affects different investments, and different investors, in different ways. Someone drawing an income from their portfolio in retirement is exposed to short-term swings in a way that someone still ten or twenty years from retirement generally isn’t. This is one of the reasons a portfolio should reflect your own timeframe and attitude to risk, rather than reacting to whatever the market happens to be doing on a given day.
Two investor behaviours worth watching for when markets are unsettled
Panic selling
Watching the value of your portfolio fall can create a strong urge to act – to do something, anything, to stop the losses. This can lead to selling investments amid a downturn simply out of worry, rather than because it’s the right move for your circumstances. Since markets have historically recovered over time, selling during a dip risks locking in a loss that might otherwise have reversed.
There are, of course, times when selling or adjusting your portfolio genuinely is the right call. The key difference is what’s driving the decision – it should come from a considered look at your goals and circumstances, not from panic in the moment.
Following the crowd
Uncertainty can make it tempting to simply do what everyone else seems to be doing – there’s a comfort in numbers, even when the herd is wrong. But another investor’s decision might be entirely sensible for their own situation and still be the wrong move for yours, if your goals, timeframe or attitude to risk are different.
If you notice yourself wanting to change your investments during a volatile period, it’s worth pausing to ask what’s really driving that urge – is it a considered response to your own plan, or is it because of something you’ve seen someone else do, or read in the news that other investors are reacting to?
We’re here if you have questions
If recent market movements have left you with questions about your portfolio, or you’d simply like to talk through whether your current strategy still fits your goals, please get in touch to speak to one of our team.
This article is for general information only and does not constitute advice. The information is aimed at individuals only. All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.