Geopolitical tensions have led to a bumpy start to 2025 for investors. If you’re worried about volatility and what it might mean for your long-term finances, there are reasons to remain calm despite the uncertainty.
The ongoing war in Ukraine has resulted in some anxiety in Europe, with the UK and other countries committing to increasing defence spending. In addition, the new Trump administration in the US has imposed several trade tariffs on partners and suggested more will follow.
As a result, many companies and sectors have seen share prices rise and fall more sharply than usual.
Indeed, according to the Guardian, the euro STOXX equity volatility index, which tracks market expectations of short- and long-term volatility, reached a seven-month high at the start of March 2025. The index has almost doubled since mid-December 2024, suggesting investors are feeling nervous.
As an investor, these external factors are likely to have affected the value of your investments over the last few months.
Investment markets don’t like uncertainty
Uncertainty is one of the key factors that contributes to volatility in investment markets.
Unknown policies or other events can make it difficult to understand how a company will perform financially over the long term. This uncertainty can affect the emotions of investors, who may be more likely to make knee-jerk decisions as a result.
Imagine you hold investments in an electronic goods company based in China. In the news, you read the US will impose a 10% tariff on all Chinese goods. As a major export market, this decision by the US could significantly affect the profitability of the company.
After hearing the news, you might worry about your finances and whether you should still invest in the company. If enough investors act on these concerns, it may result in the value of the shares in the company falling.
With so much global uncertainty at the moment, your investments and the wider market could experience more volatility than usual in the coming months.
Level-headed investors could improve investment outcomes over the long term
While it may be difficult, remaining level-headed during times of uncertainty could make financial sense. Here are four reasons to remain calm.
1. Periods of volatility have happened before
When markets are volatile, it may feel unusual or unexpected. However, market volatility is a normal part of investing.
While investment returns cannot be guaranteed, historically, markets have delivered returns over a long-term time frame. Even after downturns, markets have bounced back.
Remembering this could help put your mind at ease and allow you to focus on the bigger picture rather than short-term market movements.
2. Diversified investments could smooth out volatility
Newspaper headlines are designed to grab your attention, and they’re likely to focus on the parts of the market that are experiencing the greatest volatility. For example, you might read that “technology stocks have plunged 10%” or “markets in Japan are booming”.
While these headlines aren’t inaccurate, they don’t tell you the whole story.
In reality, a balanced investment portfolio will typically include investments across a range of assets, sectors and geographical locations.
So, while a fall in technology stocks might affect you, it may not have as large of an effect as you expect if you only read the headlines. Gains or stability in other areas of your investment portfolio could balance out the dip.
3. Market volatility may present an opportunity to buy low
If you’d previously planned to invest a lump sum or you invest regularly, market volatility may cause you to rethink. However, halting your investments might mean you miss an opportunity.
When markets fall, you might have a chance to invest when the price of stocks and shares is lower, allowing you to buy more units for your money. Over the long term, this could lead to better yields.
While investing during a low period could result in higher returns over the long term, you should ensure investments are appropriate. You may want to consider your financial risk profile and wider circumstances when deciding how to invest your money.
4. Trying to time the market can prove costly
Finally, if you’re focused on what the market is doing today, it can become tempting to try and time the market – to buy low and sell high.
However, with so many external factors affecting markets, it’s impossible to consistently time it right. Even professionals, who have a team and resources, don’t always get it right.
Rather than trying to time the market, remaining calm and sticking to your long-term investment strategy is often a better course of action.
Contact us to talk about your investments
If you have any questions about how your investments are performing or would like to review your investment strategy, please get in touch. We’re here to answer your questions and help you feel confident about your financial future.
Please note: This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.
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.
