Market Volatility not a knock out blow for Investors
Author: Patrick Holohan, Head of Investment at Compass Private Wealth
Published: Sunday Business Post, 21 April 2025
The Power of Patience
Those of you who read a lot about, or participate in investment markets will have heard a repeated refrain from advisors in recent weeks: “Stay the course, markets will come back, you are a long term investor”. You won’t see me deviate from this advice either in the majority of instances either.
To recap, the MSCI World Index had risen by nearly 5 per cent in mid February as confidence that war in Ukraine would cease brought about a more positive economic environment, with Russia and it’s significant mineral base being welcomed back into western economies.
But just six weeks later and Trumps tariffs dragged the same index down 18 per cent in Euro terms. There’s a reason why everyone is saying hold the line after such a sell off.
When markets last sold off like this, back at the height of the Covid pandemic in April 2020, quick and fast recoveries were experienced. One year after that sell off and the S&P 500 had recovered by approximately 60 per cent and 12 months after the worst of the sell off in the financial crisis of 2008, the S&P 500 recovered by around 20 per cent.
Long term investors want and need to participate in these recoveries. To miss the recovery, involves missing a significant part of overall investment return. The magic of compounding has been built on these recoveries.Those of you who read a lot about, or participate in investment markets will have heard a repeated refrain from advisors in recent weeks: “Stay the course, markets will come back, you are a long term investor”. You won’t see me deviate from this advice either in the majority of instances either.
To recap, the MSCI World Index had risen by nearly 5 per cent in mid February as confidence that war in Ukraine would cease brought about a more positive economic environment, with Russia and it’s significant mineral base being welcomed back into western economies.
But just six weeks later and Trumps tariffs dragged the same index down 18 per cent in Euro terms. There’s a reason why everyone is saying hold the line after such a sell off.
When markets last sold off like this, back at the height of the Covid pandemic in April 2020, quick and fast recoveries were experienced. One year after that sell off and the S&P 500 had recovered by approximately 60 per cent and 12 months after the worst of the sell off in the financial crisis of 2008, the S&P 500 recovered by around 20 per cent.
Long term investors want and need to participate in these recoveries. To miss the recovery, involves missing a significant part of overall investment return. The magic of compounding has been built on these recoveries.
Why Strategy Beats Reaction
So sit tight, do nothing? Not quite.
The importance of financial planning, having an overall investment policy and understanding your own risk profile has been evident at times like these.
Use this time to take stock of what you have, understand where your pressure points are and ensure your asset allocations were in line with your risk profile and objectives. If the above was done right, then the current market volatility should only be, at worst, a punch to the stomach but never a knock-out blow.
One of the main questions I ask when working with families and businesses looking to invest was ‘Why?’. To what end were they willing to participate in markets.
The answers always vary and were personal to them. But by framing investment as such you get to appreciate the time to which capital can be allowed grow.
Your Best Defense in Uncertain Times
Money invested, but needed very soon was going to cause a lot of pain right now. Money invested, but not required for some time can be allowed to breath and recover. If the current market volatility is causing you more pain than you are comfortable with then your asset allocation strategy has been out of sync and not working for you or your goals. Work with your advisors to review and rectify this straight away.
Of course it can be frustrating and worrying to witness everything that is going on at present.
Headlines, by their nature, were designed to grab your attention and in a world where we are always online it can be hard to switch off from much of the gloom.
But, if you haven’t checked in on your portfolio then I suspect you’ll likely be surprised how well it has held up if well diversified. It may be down, and in negative territory for the year, but not in the catastrophic situation that certain headlines might otherwise have you think. I’d further recommend stretching your portfolio’s performance back a few years to put the current sell off into long term context.
No one knows where these markets were going in the short term. The idiosyncratic nature of the decision makers causing this concern will likely mean many more worrying headlines. Markets will adjust along the way, all the time craving an unlikely certainty. Use this time to reset and, if you are under-invested, then create a plan to start participating in some form.
Warren Buffet was a good man to turn to for a quote and now just might be the time to take on board his contrarian view of being greedy when others were fearful. But only if your plan was in place and aligned with your goals.
Patrick Holohan is the Head of Investment at Compass Private Wealth with offices in Dublin and Cork.
Disclaimer: The above is generic in nature and does not constitute financial advice.