Schroders Investment Strategy Research Head Duncan Lamont emphasizes that shocking headlines have emerged regarding new international conflicts. As uncertainty spreads and markets react, financial market volatility has become mainstream news. Maintaining objectivity and emotional detachment during market turbulence requires considerable discipline. While saying "don't worry" is easy, few people can actually achieve this. However, what can be done is turning to objective, data-driven analysis to help moderate emotional responses and shift from impulsive reactions to more logical and rational actions. For most investors, the most appropriate approach remains staying calm, adhering to original plans, and avoiding panic due to financial market volatility. Instead, investors should focus on identifying investment opportunities hidden within the turbulence.
Duncan Lamont points out that this isn't just about market fluctuations - these represent people's retirement funds, home down payments, children's education funds, and clients' savings. People have weathered storms before, but each episode of financial market turbulence feels "different this time." In reality, crises are unavoidable. Historically speaking, stock markets experience 20% declines approximately every four years, while 10% declines occur almost annually. People easily forget this reality. Even experienced investors face the question: how many can truly maintain conviction and remain unaffected by emotions when confronting market volatility?
The reality of stock market investing is that while it offers significant long-term appreciation potential, accepting short-term volatility and risk is the "entry ticket" to capturing this growth potential. Over the past five years, global stock markets have doubled investors' asset values, whereas holding cash throughout the same period would have yielded only 14% returns. This means that $10,000 invested in stock markets five years ago would be worth $20,700 today, but the same amount held in cash would only be worth $11,400 (data as of April 4, 2025).
**10% and 20% Stock Market Declines Are Common; Long-term Investment Risk Decreases Significantly**
Stock market declines exceeding 10% occur in most years, with 20% declines averaging once every four years. Taking global stock markets as an example (based on the MSCI World Index), within the 53 years before 2025, 30 years recorded declines exceeding 10%, including 2015, 2016, 2018, 2020, 2022, and 2023 in the past decade. 20% declines occurred in 13 of those 53 years, averaging once every four years. If this situation recurs in 2025, it would be the fourth occurrence in the past eight years, following 2018, 2020, and 2022.
Despite intermittent market fluctuations, the U.S. stock market recorded strong average annual returns throughout the entire 53-year period. Duncan Lamont states that stock investment carries high short-term risk but significantly lower long-term risk, opposite to cash holdings. Based on nearly 100 years of U.S. stock market data, investing for just one month provides a 60% chance of beating inflation, but also a 40% chance of underperforming inflation - similar to cash's success rate.
However, longer investment horizons dramatically improve success rates. Over 12-month periods, stock markets beat inflation 70% of the time. Notably, 12 months is still considered "short-term" in stock market timeframes; achieving more requires longer holding periods. Five-year holdings increase success rates to nearly 80%, while ten-year holdings approach 90% success rates. In Schroders' analysis, no 20-year period has ever seen stocks fail to outperform inflation.
While long-term losses cannot be completely avoided and would be extremely painful for any investor, such occurrences are exceptionally rare. In contrast, although cash appears safe, its value is more susceptible to inflation erosion. The last time cash outperformed inflation over any five-year period was from February 2006 to February 2011, a distant memory.
**Investors Making Impulsive Reactions to Financial Market Risk Often Miss Return-Capturing Opportunities**
Duncan Lamont mentions that entering 2025, the U.S. stock market's "fear index" (VIX index) has surged. The VIX reflects traders' expectations for S&P 500 volatility over the next 30 days. History shows that selling assets during periods of high financial market panic is unwise.
Schroders analyzed a "rotation strategy" that shifts funds from stocks (S&P 500) to cash when the VIX exceeds 33, then returns to stocks when the VIX falls below 33. The VIX exceeding 33 occurs only about 5% of historical time, making it a "high" threshold. This strategy (excluding costs) generated only 7.0% annual returns, significantly below the 9.7% annual return from long-term stock holdings (also excluding costs).
Investors who are easily nervous and consider selling stocks when the VIX rises slightly would perform even worse. Only investors themselves know what's most suitable for them or their clients, as no two situations are identical. While past investment performance doesn't necessarily predict the future, history shows that investors making impulsive reactions to financial market risks often miss return-capturing opportunities.
Global geopolitical instability and unclear trade situations are intensifying, causing investor unease. However, for long-term investors, maintaining calm discipline and adhering to investment plans often proves the most effective strategy.