Volatility is not the enemy
Peter McGahan
Monday 20th April, 2026.
THE dream? An investment which could grow nicely, produce a decent return, with little or no downside fluctuation.
If we want no movement, no discomfort and no surprises, cash has a role. But if you want long-term growth which gives you buying power over inflation, volatility is simply part of the deal. It is the entry fee and the opportunity.
That is the bit many people struggle with because we tend to confuse movement with danger.
Peter Lynch managed Fidelity's Magellan Fund from 1977 to 1990 and outperformed the market by more than 13 percentage points per year, compounded, for over a decade. He stated: "markets go down, sometimes they go down a lot; if you're not ready for that, you shouldn't own stocks". He described 50 corrections of 10 per cent or more in US markets over the preceding 93 years - one approximately every two years - and characterised each as a routine feature of equity ownership, not a signal to exit.
His words: "I love volatility" capture his view that falling prices are not losses but repricing events - opportunities to buy fundamentally strong businesses at lower cost.
His most cautionary observation is that "far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in the corrections themselves".
Over a 125-year study period equities outperformed real inflation by 4.95 per cent (that’s your extra buying power you need). Gilts outperformed by 1.34 per cent and cash by 0.52 per cent.
Now we can see why we need risk. The 125-year period encompasses two world wars, two global financial crises, two pandemics, multiple currency crises, oil shocks and persistent inflation episodes.
Often investors reduced exposure during or after declines and returned to markets after the recovery was largely complete.
For UK retail investors specifically, one analysis identifies panic-selling during downturns as the primary cause of underperforming market benchmarks by 1.5 per cent – two per cent annually. On a £100,000 portfolio over 20 years, 1.5 per cent annual underperformance compounding at seven per cent growth costs approximately £55,000-£60,000 in your future wealth.
Of the 10 best single trading days in the S&P 500, seven occurred within two weeks of the 10 worst days. Vanguard UK calculated that an investor who sold their investments on April 8, 2025 (the day following Trump's 'reciprocal tariff' announcement, which caused the FTSE 100 to fall 4.95 per cent) and returned to the market on May 12, 2025, would have made a 4.8 per cent return per cent for the year. An investor who stayed invested throughout would have made 14.4 per cent.
The 1987 crash was catastrophic. So, let’s look at a £1,000 investment in the FTSE 250 over 35 years from 1986. Invested all the time, the return was £43,595. Miss the 10 best days - £24,156; the 20 best days its £15,487.
With that in mind, you might consider that if we had just one strategy, it was to buy in the time when everyone was panicking and selling, because the rebounds are close to the bottom, and no-one rings a bell at the bottom.
If you sell after a big fall, what exactly must happen next? You not only have to decide when to get out, you then must decide when to get back in. And you must be right twice. Professionals rarely, if ever, do it. Yet ordinary investors keep trying, usually with their stomach rather than their head.
A good investment adviser earns their keep here with excellent research, helping you understand what you own, why you own it, how much risk you are taking, and what part of your plan should not be exposed to stock market noise in the first place.
None of this means you ignore risk. Values can fall as well as rise and not every investment recovers in the same way or at the same time. Blind faith is not a strategy.
The real behavioural trap is thinking calm equals safety and movement equals danger. It does not. A portfolio which never fluctuates may simply be standing still while inflation quietly helps itself. Meanwhile, a well-built investment portfolio can look, noisy and uncomfortable at times, while doing exactly what it is supposed to do over the long run.
So, when volatility next arrives, as it always does, do not ask first: “How do I stop this feeling?”
Instead, ask: “Has anything fundamental changed in what I own and was it well researched’?
That question can save a fortune, because volatility is not the enemy. Panic is.
Buy well researched funds and sit comfortably.
I will be creating a guide to investing, so, if you would like a complimentary copy, please email info@wwfp.net.
If you have a financial enquiry, please call 01872 222422.
Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
