Market volatility can shake client confidence, but history shows that staying invested is key to long-term success. In this article, Brooks Macdonald’s co-CIOs, Richard Larner and Michael Toolan, explore the risks of market timing and how advisers can help clients stay focused throughout the ups and downs.
In the fast-paced world of financial markets, staying invested can feel like riding a rollercoaster. Yet, as seasoned advisers, you know that guiding clients through turbulence is crucial. While the principles of remaining invested during market volatility are familiar to you, effectively communicating these strategies to your clients can make all the difference in their financial success.
Communicating the risks of market timing
Clients often feel anxious during periods of heightened volatility, worrying about the impact on their investments. While sharp market declines can be unsettling, it’s important to reassure clients that patience is key to long-term success.
Events through time
When markets fall and fear dominates, clients may be tempted to sell and switch to cash, hoping to reinvest in the future when feeling more positive about market prospects—trying to ‘time the market.’ However, this strategy risks missing out on some of the best days of market performance, which can significantly impact long-term returns.
Source: Bloomberg, MSCI World £ Price Index (MSCI: please see important information).
Logarithmic Scale. 01/01/1971 – 07/04/2025. Past performance is not a reliable indicator of future results. A logarithmic scale represents data by showing proportional changes rather than equal increments. It progresses in multiples of 10 instead of linear steps. This approach is used here to effectively display both small initial returns and larger long-term growth within a single chart.
The benefits of staying invested
Remaining invested can be emotionally challenging for clients during market stress, but research consistently shows that this investment approach yields the best long-term results. For example, a study of US equity mutual fund investors found that attempts to time the market were a key driver of their underperformance (Dalbar, 2019).¹
Despite temptations to switch into cash, data shows that missing out on just the 10 best market-performing days can drastically reduce long-term returns. Staying fully invested during market volatility has historically resulted in significantly higher portfolio values, highlighting the power of compounding returns.
Illustrating market timing risks
Source: Bloomberg, MSCI AC World TR £ (MSCI: please see important information), Dates 01/01/2000 to 09/04/2025. The chart shows performance of a £100,000 investment. Past performance is not a reliable indicator of future results.
One common reason clients lose money is by trying to time the market, aiming to avoid the worst days by cashing out and reinvesting later. However, the best and worst days often cluster together, making it difficult to avoid the lows without also missing the highs.
For example, staying invested over a 25-year period can generate annualised returns of 6.1%, compared to 1.1% if the 30 best days are missed.
Helping clients look through the noise
With hindsight, we can now see how swiftly markets reacted to events like COVID-19. Markets rebounded to highs within 120 days following the 2020 lows. Current market volatility, driven by political factors such as President Trump’s tariff policies, may also see a rapid recovery once trade tensions ease.
By keeping to an established and proven investment framework, advisers can help clients take advantage of short-term volatility while focusing on longer-term investment opportunities. It’s essential to guide clients in avoiding behavioural biases that could negatively impact long-term returns. The journey may be bumpy, but generally, it is important to look through the noise and remain invested during times of market stress.
Your role as advisers
As advisers, you play a pivotal role in helping clients navigate these challenging times. By providing clear, evidence-based guidance, you can empower clients to stay on course and make informed decisions that support their long-term financial goals.
¹ Dalbar (2019). Quantitative Analysis of Investor Behaviour.
Written by Brooks Macdonald’s co-CIOs, Richard Larner and Michael Toolan
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