Surviving Market Volatility
Surviving Market Volatility
What’s happened:
Share markets both here and overseas are experiencing volatility relating to uncertainty over the unfolding trade situation.
Key points:
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Recent market volatility is causing dips in investment values, especially in growth assets like shares. Conversely, defensive assets such as government bonds have rallied following a flight to safety.
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During periods of market volatility, you should try to avoid making hasty changes. Staying the course and sticking to a long-term investment plan is the fundamental key to success.
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Diversifying investments across various asset classes can reduce risk and may enhance stability in a portfolio.
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We have been here before – think the GFC and COVID-19 pandemic and markets have recovered and handsomely grown.
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Time in the market – not timing the market – is a steady path to strong investment results​
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Three strategies to ride out the ups and downs
1. Time in the market, not timing the market
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Reacting to short-term market movements is rarely a good idea, and you should try to avoid being swayed into making hasty decisions based on day-to-day share market movements.
Extra Reading: Mistakes to avoid when markets are turbulent
2. Set up a steady investing strategy
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Making regular investments into your portfolio is a proven strategy to boost long-term returns. In fact, superannuation is purpose-built for making regular contributions over a long period of time, which gives you the ability to better ride out a bit of market turbulence.
Extra reading: The power of dollar-cost averaging
3. Diversify to stay strong through market volatility
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Diversification – spreading your money across a range of different assets rather than putting it all in one place – is a core principle of investment risk management. That's because returns from different assets are never consistent. Part of the value we provide is recommending proven mix of core and satellite investments that provide diversification across regions, asset classes, investment styles, and thematics to a wide range of growth and income dynamics.
Brief explainers
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What is market volatility?
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If you've recently noticed a change in the value of your super or investment account, it could be reflective of recent market volatility – this refers to movements in the value of investment markets and individual assets.
Market volatility is a normal part of investing, and it’s worth remembering that recent falls follow strong share market performance over the year to 31 December 2024. Over this period, the S&P 500 (in USD) – which tracks the performance of 500 of the largest companies listed on US stock exchanges – returned 25.02% (including dividends).
In a volatile market, what should you do?
With constant headlines about tough investing conditions, it may be tempting to make changes to your investments or possibly switch into cash.
But the consensus from the experts at Vanguard is to stay the course.
History shows us that sticking with a long-term investment plan is the key to success.
Market ups and downs are unavoidable. But despite the noise, it’s clear that asset values have steadily increased over the last 30 years.
By understanding the importance of regular investments, diversification, and the need to stay the course, you can stay in control of your investment plan.
So, what’s causing the current volatility?
A driver of recent market volatility is uncertainty over the unfolding trade situation following tariff announcements made by the White House on 2 April 2025.
While these announcements add some clarity to the Trump Administration's tariff stance, the situation could still change.
This means that current market volatility may be around for weeks, and potentially months.
We’ve been here before
Market volatility is nothing new, and certainly not new to Vanguard with 50 years of investing experience.
Consider some of the events that have shaken investment markets over the past 30 years or so, including the:
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Asian currency crisis in 1997: When the rapid devaluation of the Thai baht triggered a series of currency crises across Asia.
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dot.com bubble burst in late 2000: When a share market bubble that ballooned during the late-1990s burst, seeing many online shopping and communications companies failing.
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global financial crisis (GFC) in 2008: A major worldwide economic crisis, largely caused by subprime mortgage lending in the US and a resulting housing bubble.
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COVID-19 outbreak in early 2020: The COVID-19 pandemic, which began in China and soon spread worldwide, causing significant global economic and social disruption.
Each of these events grabbed headlines,but ultimately were relatively short-lived and markets recovered.
A steady path to strong investing
It’s the long-term trend that really matters. Historical market returns show us that those who ignore the emotional swirl of short-term market conditions and focus on long-term results are rewarded for their patience and discipline.
A well-built balanced portfolio will be able to withstand the inevitable (and unpredictable) ups and downs of markets.
Investing is a marathon, not a sprint. Successful investing isn’t about timing the market or picking the winning stock. It’s about broad diversification, a long-term perspective, and the discipline to stay invested when things get tough.
You can’t control how markets behave. But by understanding the importance of regular investments, diversification, and the need to stay the course, you can stay in control of your investment plan.