The impact of selling out when markets get rocky

Markets have been all over the place lately – sharp drops one day, big gains the next.

It’s because of sudden policy shifts and rising global tensions, especially from the US, that have been shaking investors around the world.

In April, the S&P 500 (the US stock market benchmark) dropped 6% and 4.8% in single days – then surged 9.5%. That kind of volatility can shake even the steadiest of nerves.

And if you’ve felt uncertain about your investments, you’re not alone. But stepping back too soon could mean missing the recovery.

Staying invested – and keeping a long-term view – often works out better than reacting in the moment.

Our article below explains why.

Seeking safety

When markets get rocky, it’s natural to want to play it safe. 

Many investors respond to volatility by dialling down risk – selling shares, shifting into bonds or cash, or stepping out of markets altogether.

For those focused on protecting wealth, it can feel like the sensible thing to do. Especially if they also run a business that’s being affected by the same market pressures.

But emotional decisions and instinctive reactions can sometimes lead to costly mistakes.

Bear market psychology

When markets drop 20% or more from a recent high, it’s called a bear market – and it can play tricks on investor thinking. 

Suddenly, risks feel bigger. Worst-case scenarios grab attention. But that emotional pull can cloud judgement, especially if the downturn is short-lived.

Here are a few common behavioural traps to watch for:

• Loss aversion – Losses sting more than gains feel good, making panic selling more tempting
• Short-term thinking – Volatility can make investors focus on the near term and lose sight of the bigger picture
• Recency bias – Assuming recent market falls will keep happening, while forgetting long-term trends
• Overconfidence – Believing you’ll get back in at the perfect time – even though timing the market is notoriously hard

• Herding – Following the crowd out of fear, rather than making decisions based on your own goals.

The long-term cost of comfort

Dialling down risk or moving into cash can feel like a safe move in the middle of market turmoil. It might protect against short-term losses – but there’s often a long-term trade-off. 

More cautious portfolios typically grow more slowly. In other words, seeking comfort now can mean missing out on future gains.

We saw this play out during the COVID-19 crash in early 2020. Markets plunged fast – the S&P 500 dropped 30% from its all-time high in just over a month – before rebounding strongly to end the year in positive territory.

Investors who stuck with a balanced portfolio recovered and grew their investments over time. But those who shifted to low-risk assets or cashed out entirely saw far smaller returns over the years that followed.

The takeaway? De-risking might feel sensible in the moment – but over time, staying the course often does more for your wealth.

Avoid locking in losses

Markets can bounce back quickly after a sharp fall – and some of the best days often come right after the worst. 

Selling during a downturn can lock in losses. And once you’ve pulled back, it’s often harder to step back in – and getting back in later often means buying at higher prices.

Other ways to manage risk

In tough markets, it can feel like your only options are to stay in or get out. But managing risk doesn’t have to be all or nothing. 

Tactics like rebalancing gradually or using hedges can help protect long-term goals while easing short-term worry.

A 'core and satellite' approach is another option – keeping most of your portfolio steady and in line with your long-term investment objectives (the larger core), while making small, tactical shifts around the edges (the satellite section of your portfolio) to respond to changing conditions.

There are always opportunities

It’s natural to want less risk when markets get rough. But it’s important to remember: taking on risk is what earns returns in the first place. 

That’s why it helps to stay focused on long-term goals. Sharp dips and negative sentiment can often bring investment opportunities – not just setbacks.

For example, strategies that aim to perform regardless of market direction – known as market-neutral strategies – could offer ways to stay invested while managing risk.

One constant in a sea of change

If the start to 2025 has been marked by market volatility and shifting US policies, there’s every chance the rest of the year will follow suit. Both in markets and in the stories we hear. 

Predicting the bottom in such an uncertain environment is impossible, especially when so much depends on the actions of just one person (the US president).

The truth is, no one knows exactly what comes next. Forecasts will keep changing. But what doesn’t change for investors is the importance of clear thinking, patience and perspective.

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