If you follow the financial news closely, you might have read about near-constant volatility occurring in global stock markets in the summer of 2024.

After a rocky few years during the pandemic, markets are still experiencing volatility. With several important political elections and geopolitical conflict all occurring simultaneously, some investors have been spooked by this ongoing unpredictability, causing market fluctuations.

Indeed, while we’re experiencing a global bull market (stocks are rising on the whole) in 2024, unexpected volatility hit in August. Market Watch reports that 5 August was the worst day for global stocks in 2024. Worryingly, their research shows that of the investors who reacted, 17% panic-sold investments on this day.

As you might have read in our recent guide to successful investing for business owners, everyone’s journey to becoming a consistently successful investor is unique. That said, there are key mistakes that even experienced investors make again and again – and we want to help prevent you from making them.

Here are three easy investment mistakes to make when markets are volatile.

1. Panic-selling

Even if you’ve never heard the term “panic-selling” before, the clue is in the name. It describes an investor witnessing the value of an asset go down and quickly selling it to avoid further losses.

While this is an entirely understandable knee-jerk reaction (after all, it can look like you’re “losing money” by the minute during a stock market dip), panic-selling isn’t the best course of action.

The thing is, the market’s best days often come very quickly – even the day after – its worst. Markets usually recover quickly from short-term downturns, meaning that those who panic-sell crystallise their losses and miss out on potential growth.

Take a look at this chart that shows the growth panic-sellers could have missed by disposing of assets on the US S&P 500’s worst trading days between 2003 and 2022.

Source: Visual Capitalist

This graph reveals that, if you initially invested $10,000 in 2003, missing 10 of the S&P 500’s best days between 2003 and 2022 could have lost you $35,136 in growth. On the more extreme end of the spectrum, missing 60 of the index’s best days over the same time frame could have meant losing $60,639 in potential growth.

Staying invested and sticking to your financial plan, even if you notice your portfolio’s value fluctuating, will help you maximise growth opportunities over the long term.

2. Hiding out in cash

Those who have been spooked by market volatility, which can occur due to global events outside of their control, may be liable to simply sell up and keep their wealth “safe” in cash. You might find cash especially attractive if your money earns a competitive interest rate.

Granted, it is true that your cash won’t experience the same highs and lows as invested capital might. But it’s important to note that over time, investments should grow faster than the rate of inflation. On the other hand, large amounts kept in cash will definitely be eroded in real terms by inflation.

For example, Schroders measured the performance of both large cap stocks and cash against inflation between 1926 and 2022.

Source: Schroders

As you can see, while cash and large cap stocks performed similarly against inflation over the short term, stocks are more likely to outpace inflation over a period of several years. Plus, over a 20-year time frame, large cap stocks beat inflation 100% of the time, whereas cash only achieved the same result 66% of the time.

While past performance is not a reliable indicator of future performance, it’s clear to see that hiding out in cash isn’t as “safe” as it seems.

3. Following the herd

Even the most experienced investors can be swayed by the power of suggestion. If your friends, colleagues, or those you follow on social media are all investing based on what the “herd” is doing, you may be tempted to follow suit.

This is especially true in today’s mediatised world – investors today can find out more with a few taps of their phone screen than professional stock brokers learned in several days back in the 1980s.

Accessing this wealth of information is helpful when you’re just looking to understand your options, but if you’re easily convinced by what others are doing, this could hamper your financial progress. In a stark example, Capital One reveals that 13% of people now use social media to gain financial advice, but of these, 74% experienced an “undesired outcome”.

Let’s go back to 5 August 2024. Global stocks fell, with the most concentrated downturn happening in Japan, with markets in this region experiencing their worst dip since 1987. If you had been following investors on social media or talking to friends on this specific day, and all these individuals had decided to cut their losses and sell shares that were plummeting in price, you might have done the same.

Yet, as Market Watch reports, just days afterwards the Japanese market had “erased” the losses experienced on 5 August. While dips might feel like a catastrophe in the moment – not helped by a “herd mentality” that some investors can fall into – markets usually recover quickly.

Instead of following the herd, it may be more useful to create an investment strategy that you stick to no matter what happens. Then, while others are reacting impulsively to market movements, you can sit tight and know your plan is there to help you reach your long-term goals.

Get in touch

If you’re a business owner looking to build wealth through an investment portfolio, we’re here to guide you throughout your journey.

Download our free guide to successful investing and get in touch with us for a bespoke review of your wealth.

Email us at clients@iqf.ie, or call 353 71 915 5560.

Please note

This article is for information only. It does not constitute advice.

It describes financial planning services that iQ Financial can offer to you. Financial planning services are not regulated by the Central Bank of Ireland.

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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.