Stock market turbulence can be unsettling, even for the most seasoned investors. The market’s ups and downs can trigger a range of emotions, from anxiety to excitement. 

It’s easy to give in to these emotions, but doing so can lead to costly mistakes. By avoiding these common pitfalls, you can give yourself the best chance of achieving long-term investment success. 

Here are six common mistakes to be aware of during volatile times.

1. Panic selling and locking in losses

One of the most common mistakes investors make when markets dip is panic selling. It’s natural to feel the urge to cut your losses and sell your investments, but doing so can ‘lock in’ your losses. When the value of your investments drops, the losses are only potential or unrealised until you actually sell and convert them into real losses. By holding onto your investments, you give them a chance to recover as the market stabilises.

Imagine you invest £100 in a fund and its value drops to £80. If you sell at £80, you lock in a £20 loss. However, if you hold onto your investment, its value might eventually recover to £100 and continue to increase further, erasing your potential loss. While the fund might drop further in the short term, over longer periods markets have historically gone up more than they have gone down. By avoiding the temptation to sell, your investments have the opportunity to recover and potentially grow even more. 

2. Ignoring longer-term trends

Another common mistake is focusing too much on recent market movements, a phenomenon known as ‘recency bias’. This bias can lead you to overreact to short-term trends, causing you to make impulsive decisions that can harm your long-term investment strategy.

While it can be difficult to ignore current market conditions, it’s important to focus on the longer-term trends. Historically, the stock market has shown a tendency to recover and grow over time. 

For example, over the past 50 years, there have been eight periods when shares fell more than 20%. Despite these downturns, the overall trend has been one of significant growth. A £100 investment in the stock market in 1972 would have grown to more than £7,000 by 2025¹. Past performance is not a guarantee of future results, but it serves as a powerful reminder of the market’s resilience. 

3. Reacting to the media

The media can be a double-edged sword. While it provides valuable information, it can also amplify market turbulence through dramatic headlines and social media chatter. This can create a sense of urgency which can cloud your judgement. It can also lead to ‘herding behaviour’, where you follow the crowd without considering your own investment strategy. It’s important to filter out the noise and focus on your own investment plan.

4. Focusing more on losses than gains

Loss aversion is a psychological bias that makes us feel the pain of losses more acutely than the pleasure of gains. This can lead to a heightened focus on the negative aspects of your portfolio, causing you to overlook the positive performance of other investments.

It’s natural to feel concerned about losses, but it’s important to maintain a balanced view. Look at your portfolio’s overall performance and consider the gains you’ve made in other areas. A portfolio that spreads your money across different types of investments, such as shares and bonds², as well as different industries and regions of the world can help mitigate the impact of losses in one area.

5. Making drastic changes to your portfolio

During turbulent times, it can be tempting to make drastic changes to your portfolio. We are programmed to take action when we think things are going badly. But it’s important to remember that market dips are a normal part of investing. Doing nothing – other than occasionally rebalancing your portfolio or buying shares to take advantage of lower prices – is usually the right course of action. 

After all, your investment plan is designed to balance risk and return in a way that reflects your individual goals and attitude to risk. Unless your circumstances have changed, making drastic changes can leave you overly exposed to other risks and may not align with your long-term goals. For example, if you reduce your allocation to shares, your portfolio might not generate enough returns to keep up with the rising cost of goods and services (otherwise known as inflation). That means the purchasing power of your investments could erode over time and you might not reach your goals as quickly as you hoped.

6. Trying to time the market

Market timing is when an investor attempts to predict the best times to buy and sell investments. While it might seem like a sensible strategy, it’s incredibly difficult to execute successfully. If you sell during a downturn, you’re likely to buy back in when you feel more confident. However, the market may have already risen by then, which means you’ll have locked in losses and missed out on subsequent gains. This can also leave you facing more uncertainty when the markets dip again. It’s usually better to focus on a consistent, long-term investment strategy and ride out the tough moments.

For more information on how to navigate the market’s ups and downs, visit our market volatility hub.

¹ Figures are based on the MSCI World Price Index from 1 January 1972 to 17 January 2025. Source: Vanguard calculations in GBP using data from Refinitiv. 

² Bonds are a type of loan issued by governments or companies, which typically pay a fixed amount of interest and return the capital at the end of the term.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Past performance is not a reliable indicator of future results.

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This is designed for use by, and is directed only at persons resident in the UK.

The information contained herein is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. The information does not constitute legal, tax, or investment advice. You must not, therefore, rely on it when making any investment decisions.

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