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Managing risk in volatile markets:The case for staying invested

For Professional Advisers only

Why the market turbulence triggered by Covid-19 reinforces a famous investment principle followed by Warren Buffett and others...

What if an investor had removed risk from their portfolio at the height of the market turbulence this year? What if an investor had stayed the course? What would the outcome have been?

The emergence of Covid-19 was the most significant event facing investors since the collapse of Lehman Brothers in 2008. And many were triggered into action.

Time in vs timing

Investors face potentially rough seas at the start of their investment journey but, if they can stay the course, returns are overwhelmingly likely to be positive.

The heatmap below shows historical annualised returns for a single investment, the MSCI World Equity Index. Though diversified across countries and sectors, this investment is 100% equities and therefore carries high risk.

It shows dates from 1970 to the present – representing all the dates an investor could have purchased this index – and how long they held it for. In effect, it shows every combination of buy date and sell date for the last 50 years.

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What does it tell us?

The areas in red show losses when, for that combination of buy and sell date, an investor would have lost money. The important thing to note is that the red patches cluster on the left, close to the horizontal.

It shows that, even when investors make high risk calls at precisely the wrong time (the largest red zone near the year 2000 represents the peak of the internet bubble), they will be above water 12 years later.

Multi-asset and reaching the 'sea of blue'

Of course, investors do not get things this spectacularly wrong.

They usually enter the market at different points in time, they diversify, and they re-balance along the way. If they do these things – adopt a multi-asset, moderate-risk, re-balancing approach – that 12-year line moves substantially to the left.

Getting to that sea of blue means riding out the ups and downs along the way, but only by staying in the market will investors get this experience.

Covid-19 and the case for staying invested

The market turbulence triggered by the Coronavirus pandemic earlier this year was not only remarkable for its scale, but for its speed.

Global stocks had the best and worst sessions in a decade on consecutive days.

Between 12 February and 23 March, the MSCI World Index fell 32% but, by early June, it had recouped more than three-quarters of that.

The turbulence spooked even seasoned investors.

What would have happened if investors sold out of equities earlier this year, when markets were extremely volatile?

Below we look at the outcomes for two investors, one advised and one not, between January and October 2020. Each has a long-term investment horizon and a simple portfolio worth £50,000 split equally between equities and fixed interest securities.

While our advised investor, Andy, opts to wait out the market turbulence that begins in February, our non-advised investor, Kim, is spooked and acts to de-risk their portfolio.

How did our investors fare?


Andy is an advised investor who, on the recommendation of his IFA, opts to wait out the market volatility earlier this year. Here is how his simple portfolio performed, to 1 October.

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Though his portfolio had fallen by almost £6,000 by April, thanks to a 19% drop in his equities pot, Andy had recouped all his losses by July and, by October, was again displaying a healthy return.


Kim is a non-advised investor. Once Kim sees the direction of the markets, she decides to de-risk her portfolio by halving her equities allocation. From 1 March, her portfolio is split 25% equities and 75% fixed income. Here is how Kim’s portfolio diverged from Andy’s following this one-time re-balance.

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Though Kim was able to shield her portfolio from the very worst of the downturn, it was unfavourably positioned for the rebound that followed. By 1 October, Kim’s attempt to time the market left her portfolio more than £1,000 short of where it could have been without taking any action.

These are, it should be noted, narrow time frames, and the effects on our investors’ investment objectives would depend on a range of factors, most notably time horizon.

However, as an example of what could have happened to investors fearful of the market volatility, it is one of several examples where ‘time in’ trumped ‘timing’.

How about with impeccable timing?

How much better would Kim have fared even if she had made the call to de-risk at precisely the right moment, i.e. when equities were at their Q1 peak just prior to their sharp decline?

In this instance, Kim has selected to de-risk her portfolio in the same way as before, but on 20 February, with the MSCI World at a high of 5,514, instead of 1 March.

By 1 October, while Andy has amassed £52,400, growth of 4.7%, Kim’s portfolio has now reached £52,600, a difference of just £200.

So, even with theoretically perfect timing, Kim’s portfolio sits at virtual parity with Andy’s.

Last word

“We continue to make more money when snoring than when active,” Warren Buffett once said.

How many advisers picked up their phones to speak to clients in the early months of this year?

How many did so to relay the message that, though volatility can be distressing, the case for staying invested, particularly for those with longer investment horizons, remains strong?

It is not difficult to find examples of the principle that time in the market triumphs over timing the market.

Investor Nicholas Sleep once said:

“For the record, we do not have the faintest idea what share prices will do in the short term – nor do we think it is important for the long-term investor.”

Following the events of this year, and the uncertainty that lies ahead, now may be as good a time as any to remind clients of that.



Past performance is not necessarily a guide to future performance and the value of investments (and any income from them) can go down, so an investor may get back less than the amount invested

To find out more or to discuss any of the points raised in this article, contact your Account Manager on 0345 607 2013.

To access any of the documents, graphs or images in this article, see under ‘supporting documents’ on our managing risk home page.

About the authors

Greg B Davies PhD, Head of Behavioural Finance, Oxford Risk

Greg is a specialist in applied behavioural finance, decision science, impact investing, and financial wellbeing. He started the banking world’s first behavioural finance team at Barclays in 2006, which he led for a decade. In 2017 he joined Oxford Risk to lead the development of behavioural decision support software to help people make the best possible financial decisions.

Greg holds a PhD in Behavioural Decision Theory from Cambridge; has held academic affiliations at UCL, Imperial College, and Oxford; and is author of Behavioural Investment Management.

Greg is also Chair of Sound and Music, the UK’s national charity for new music, and the creator of Open Outcry, a ‘reality opera’ premiered in London in 2012, creating live performance from a functioning trading floor.

Scott Sinclair, Content Strategy Manager, Embark Group

Scott Sinclair is a former financial journalist and editor who has spent the past five years creating engaging content for financial advisers, first with Zurich and then Embark Group. Scott was editor of Professional Adviser, part of Incisive Business Media, between 2012 and 2016.

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