Helping clients stay the course in volatile markets

We're all familiar with the phrase "time in the market, not timing the market" but recent market turmoil may have challenged investors' faith in this adage.

For financial advisers, concerns about market volatility have no doubt triggered a number of conversations with worried clients.

When it comes to markets, it is invaluable to be able to help clients understand that volatility is a natural part of investing, and the findings from a recent study by Fidelity, "Be Invested", may be useful.

We undertook research across Asia Pacific and Europe, speaking with 13,000 retail investors in Australia, Japan, Hong Kong, Singapore, Taiwan, and mainland China, to understand how they are feeling about markets and how this is affecting their investment approach.

Encouragingly, a significant number of investors in Asia Pacific (APAC) say they are maintaining a long-term perspective and staying invested, allowing for the potential for stock market drops to be later followed by new highs.

According to the research, one-fifth (20%) of APAC investors say market fluctuations do not affect their investment behaviour, as they remain committed to their long-term strategy despite short-term movements. This is particularly the case for investors aged 55 or above (24%), underlining the relative resilience of older investors.

However one-quarter (25%) told us that they temporarily stop investing during periods of volatility. Pleasingly, a further 17% of APAC investors say they seek advice before making changes, especially in Australia where 22% sought advice.

We know that investors who remain invested through periods of uncertainty are more likely to benefit from eventual recovery and long-term growth, so it's important to encourage investors to remain focussed on long-term outcomes.

As Chart A shows, the impact of missing the best days in the market, as opposed to staying fully invested, can be significant.

CHART A

It is notable that our "Be Invested" research also showed that older investors - those aged over 55 - are more likely to remain committed to their long-term investment strategy, with 24% of those aged 55 and over saying that market fluctuations do not affect their investment behaviour.

There are several factors that could be driving this, including the benefit of experience where older investors are likely to have already gone through several market cycles including the post-GFC market. It's also likely that older investors are benefiting from professional financial advice.

Perhaps more concerning is the evidence that "home bias" in investing is still firmly entrenched in Australia compared to the broader APAC region, as shown in Chart B. With the exception of mainland China, Australian investors are the most likely to invest in their home market, with just over two-thirds (67%) investing in Australia compared to the APAC average of 61%.

CHART B

To help investors navigate volatile markets and stay positioned for future opportunities, there are three key principles to highlight:

1. Stay invested

Periods of volatility may tempt investors to step back from the market, but this can mean missing key recovery moments. Historic data confirms that markets will recover from major downturns, including the dot com crash, global financial crisis, and COVID-19 crash. While recessions and market shocks will cause short-term drops, markets have consistently recovered and gone on to reach new highs. Staying invested helps ensure participation in long-term growth.

2. Diversify across regions and sectors

While home markets can feel more familiar, diversification remains essential to managing risk and smoothing returns over time. Crucially, effective diversification means allocating to assets and markets that behave differently under stress.

3. Take a long-term view rather than timing the market

Short-term market setbacks can present opportunities to invest at more attractive valuations. Investors who remain patient and focused on long-term trends can be better placed to benefit as markets recover.