On 2 April – “Liberation Day” – Donald Trump introduced new US trade tariffs, prompting a decline in investor confidence and a significant dip in global markets. However, a few days later, Trump’s subsequent announcement of a 90-day delay for many of the tariffs triggered a market rebound.
While such swings may understandably cause you to feel nervous, short-term market dips caused by global events are part and parcel of investing.
During periods of volatility, making decisions based on short-term movements or emotional, knee-jerk reactions can often do more harm than good. Historically, maintaining your investments has typically been the best strategy to recover losses, and reacting to short-term dips can cause you to lose out.
Read on to find out how history shows it’s best to stay calm amid volatile markets.
Market declines of 10% or more occur more often than you may think
When markets take a downturn, it can be tempting to exit for cash to try and limit your losses. But it’s important to recognise that market dips are a normal part of investing and are more common than you may think.
Research from Schroders shows that between 1971 and 2023, stock market falls of 10% or more on the MSCI World Index happened in more years than not.
Source: Schroders
As you can see, falls of 10% or more happened in 30 of the 52 years, while more substantial falls of 20% or more occurred in 13.
To put the recent volatility into context, data from Markets Insider shows that the MSCI World Index dropped by approximately 12.5% from the start of the year to its lowest point following the announcement of US tariffs. However, it rebounded strongly and had recovered much of those losses by 2 May.
Despite how often dips occur, the MSCI World Index and other markets have consistently shown long-term upward growth.
The graph below illustrates how $1 invested in the MSCI World Index from 1970 to 2019 would have grown alongside major global events that triggered significant downturns.
Source: Harvest
As you can see, dips triggered by major events are a normal part of investing, but the market continues to trend towards growth in the long term. This highlights the value of keeping a long-term perspective and not letting short-term volatility derail your strategy.
Exiting the market often means missing the chance to recover
It’s important to remember that a drop in value is only a loss on paper until you sell. By remaining invested, you give your portfolio a chance to recover, and history shows that maintaining your investments is the fastest route to recovery.
For instance, research by Schroders reveals that an investor who moved to cash after a 25% fall during the Great Depression wouldn’t have recovered their losses until 1963. Yet, someone who stayed invested would have bounced back by 1945.
Similarly, if you’d have exited for cash after a 25% decline during the 2008 financial crisis, you would still be recovering today, while staying invested would have seen you recover by 2013.
Even outside of major crashes, pulling out of the market during periods of volatility can cause you to lose out.
The Vix – also known as the stock market “fear gauge” – is a measure of the amount of volatility traders expect for the US S&P 500 index during the next 30 days.
City A.M. reports that, after Trump announced the tariffs, the Vix reached its highest point since the onset of the pandemic in 2020.
Despite this volatility, the research conducted by Schroders shows that selling during such periods is typically a bad idea.
They evaluated a strategy in which an investor sold S&P 500 stocks whenever the VIX exceeded 33.2 and re-entered the market once it dropped back below that threshold. They tracked how a $100 investment would have performed under these conditions, and the results are illustrated in the graph below.
Source: Schroders
As you can see, selling when the VIX was high would have yielded an average annual return of 7.4%, compared to 9.9% from staying fully invested in stocks. So, while moving to cash during periods of volatility might feel like a sensible decision, it could hinder your recovery and significantly affect your long-term wealth growth.
Portfolio diversification can help protect against volatility
While market fluctuations are a normal part of investing, a well-diversified portfolio can help cushion losses during periods of volatility and may even create opportunities for you to benefit from gains across broader markets.
Diversification reduces overexposure to any single region, sector, or asset class, supporting a more balanced and steady approach to growth.
For example, the table below ranks the annual performance of major global indices from 2014 to 2024, along with their year-to-date performance in 2025 and monthly returns for April.
Source: JP Morgan
As the data shows, it’s nearly impossible to predict which index will lead in performance from year to year based on past results.
In April, Asian indices and emerging markets posted gains, while European and US markets declined. Yet, despite those short-term losses, the two European indices still rank among the top three performers in the year-to-date, demonstrating that short-term movements don’t always align with longer-term trends.
If you were heavily concentrated in the S&P 500, you would have likely felt the recent volatility more sharply than if your investments were more broadly diversified. However, avoiding the S&P 500 altogether would mean missing out on its impressive 25% growth in 2024.
This variability underscores the importance of diversification as it helps to reduce your dependence on any one market and promotes a steadier and more stable path to long-term growth.
Get in touch
By focusing on your long-term goals and understanding that market downturns are a normal part of investing, a financial planner can help you stay on track. They can also guide you in diversifying your portfolio to help reduce risk and position you to take advantage of broader opportunities.
To speak to a financial planner, get in touch.
Email info@blueskyifas.co.uk or call us on 01189 876655.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients 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.