Market volatility is a natural part of investing. It refers to the ups and downs in the value of investments over time. These movements can feel uncomfortable for investors, but they’re not unusual, and importantly, they’re not necessarily a sign that something is wrong. In fact, market volatility is often an essential and ongoing part of the investment landscape. In today’s climate, where markets remain sensitive to shifting economic signals and periods of heightened uncertainty, these fluctuations are a timely reminder that volatility is an inherent feature of investing rather than an anomaly.
This leads to a fundamental point: generating returns typically requires some level of risk. Without it, there’s limited potential for growth. Over time, accepting short-term fluctuations is often what allows investors to achieve long-term results.
Markets go up and down, sometimes sharply, but the longer-term upward trend tends to outweigh the troughs, as shown in the charts below (figure 1).
For investors with a long-term outlook, staying invested through volatility is essential. Looking at a longer time frame, like ten years, can make short-term drops seem less worrying (figure 1). That’s why experts often say to “zoom out” as it helps you see the bigger picture and the overall trend, instead of focusing only on small, recent changes. The charts are a reminder to investors to look past the attention-grabbing headlines and look at any declines in a wider context. This is important for several reasons:
In practical terms, volatility means that markets don’t move in a straight line. Prices rise and fall in response to news, economic data, investor sentiment, and increasingly, short-term analysis from the investment industry itself. These shifts can happen intraday, daily, weekly, or over longer periods. Market volatility is often triggered by unforeseen events such as geopolitical tensions (e.g. the Russia-Ukraine war that started in 2022), policy changes (e.g. the shift in monetary policy through changes in interest rates by major central banks in 2025 to combat inflation), or global shocks (e.g. the April 2025 trade war escalation by the U.S. administration), but it can also stem from overreaction to short-term forecasts and the influence of high-frequency trading.
Figure 2 illustrates the World Uncertainty Index from January 2008 onward, where higher values reflect greater uncertainty. The data reveals repeated surges over time, with peaks during financial crises and pandemics, and a new high in 2025 driven by trade wars, geopolitical tensions and unpredictable policy shifts.
Uncertainty and volatility are fundamental to how markets function and understanding their role is key to long-term wealth creation. So why is now not the time to panic? Importantly, market volatility doesn’t just reflect risk, it could also create opportunity. It is not something we should fear, but something to understand. For many asset managers and investors alike, periods of market turbulence can be a chance to identify mispriced assets, reassess sectors and regions, and uncover potential for unrecognised growth. What is crucial is understanding the right level of risk to meet financial goals.
Avoiding risk might seem like the safest choice, but it may also create new risks. If you keep too much money in cash or in very low-return investments, your wealth may not grow enough to meet your long-term goals over the long run. Inflation can erode your real purchasing power, meaning your money buys less over time. Treating market volatility as a reason to avoid investment risk has an opportunity cost: you might miss out on the best opportunities for future growth. There’s an important difference between prudent patience, where you wait for the right moment while sticking to a long-term plan, and passive inertia, where you do nothing out of fear. The first is strategic; the second can leave you falling behind financially. In essence, the objective isn’t to avoid risk entirely, but to manage it effectively. Aim to assume a level of risk that supports long-term growth while remaining within a range that preserves your financial peace of mind.
Risk can’t be eliminated, but it can be managed. One of the most effective ways is diversification, the concept of not putting all your eggs into one basket. This can be achieved by spreading investments across different asset types, sectors and regions which helps reduce the impact of any single event and smooths out the overall investment experience. It also allows investors to benefit from areas of the market that may be thriving even when others are struggling.
Risk should always be considered in the context of your goals. Whether you’re investing for retirement, education or building wealth, some level of risk is necessary to get there. The key is to take the “goldilocks” level of risk (not too much, not too little), and to stay focused on the bigger picture. When investors understand that volatility is part of the journey, they’re better prepared to stay the course. Further, when asset managers treat volatility not as a threat but as a source of opportunity, portfolios are often better positioned to benefit.
Historical data shows that markets generally trend upward over the long-term despite short-term wobbles. Investors who remain invested through market ups and downs tend to achieve better long-term performance. Genuine diversification is crucial for designing a robust portfolio that can navigate various economic environments. While market declines are challenging, it is important to "zoom out" and focus on the big picture. Ultimately, risk is not something to entirely avoid but some level of risk is likely to be both necessary and manageable as part of successful investing.
As we move further into 2026, remember that short-term noise is likely to be a factor of long-term investing. The key is to stay focused on your goals, maintain diversification, and avoid too many reactionary decisions.
We explore more of these wealth management themes in our Navigating 2026: Key trends driving solutions for UK wealth managers and our Global Investment Outlook 2026.
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