If you have checked your investments recently and felt a knot in your stomach, you are not alone. Watching the value of your portfolio drop, even temporarily, is unsettling. The instinct to do something, to protect what you have built, is completely natural.

But more often than not, acting on that instinct is what causes the real damage.

This month we want to have an honest conversation about how markets behave during uncertain times, why our instincts tend to work against us, and what the evidence consistently shows is the better path forward.

 

Why we react the way we do

We are all wired to avoid loss. Research in behavioural finance shows that the pain of losing money is roughly twice as powerful as the pleasure of gaining the same amount. That is not a personal failing; it is simply how human beings are built.

The problem is that this instinct, helpful in so many areas of life, is poorly suited to investing. When markets fall sharply, the emotional pull is to protect what remains. Sell now. Wait for things to settle. Get back in when it feels safer.

It sounds sensible. But by the time things feel safer, markets have typically already recovered a significant portion of their losses. Investors who exit during the downturn lock in those losses, and then miss the rebound entirely. That rebound is often where a large part of long-term returns are generated.

 

What 2020 reminded us

The COVID-19 crash of early 2020 remains one of the most useful recent examples of how quickly markets can move in both directions.

Between mid-February and late March 2020, global equity markets fell roughly 30 to 35 percent in a matter of weeks. The news was relentless and the uncertainty was real. There was no clear timeline and no obvious floor. Many investors sold.

Then markets turned. By the end of August 2020, the US S&P 500 had fully recovered its losses and reached new highs less than six months after the crash. The JSE followed a similar path through the second half of 2020 and into 2021.

The investors who stayed the course, and in some cases kept contributing through the downturn, were rewarded. Those who waited for certainty missed much of that recovery.

Markets do not always bounce back this quickly. Sometimes recoveries take longer. But the broader pattern, across decades and across different markets globally, is consistent. Volatility passes. Time in the market is what builds wealth.

 

The hidden cost of stepping out

Missing even a handful of the market’s best days has a surprisingly large impact on long-term returns. And here is the part that catches most people off guard: those best days tend to cluster right in the middle of, or just after, periods of heavy turbulence.

If you step out during a downturn, you are likely to miss exactly the days that do the most work for your portfolio.

Over a 20 or 30-year investment horizon, the difference between staying invested and repeatedly moving in and out of the market is not trivial. It is often the difference between the retirement you planned for and one that falls short.

What we suggest during volatile periods

This is not about sitting still and hoping for the best. It is about making sure your response is driven by your plan, not your anxiety.

A few things worth keeping in mind right now:

  • Your time horizon matters most. If retirement is 15 or more years away, today’s market level has very little bearing on your outcome. What matters is where things stand when you actually need the money.
  • Step back from daily monitoring. Checking your portfolio every day during a downturn feeds anxiety without improving outcomes. Give yourself permission to look less often.
  • Think about what lower prices mean for you. If you are still contributing to your investments, a market dip means your contributions are buying more units. For long-term investors, volatility is not only a risk. It can also be an opportunity.

 

The real power of staying invested

Compounding is the engine behind long-term wealth creation, and it only works if you remain invested through the full cycle.

The mathematics are straightforward. Returns earned this year generate returns next year. Those combined returns generate more the year after. Over time, growth builds on itself in a way that no short-term strategy can replicate. But it requires patience, and it requires not abandoning the plan when things feel uncertain.

Retirement annuities and tax-free savings accounts are particularly powerful tools in this context. The tax advantages built into these structures, including growth free from dividends tax and capital gains tax within the vehicle, compound most effectively when left to grow over many years.

 

Three myths worth addressing

These are conversations we have with clients regularly, especially when markets are unsettled. We want to address them directly.

Myth 1: ‘Cash is safer during a downturn’
Cash feels safe because the number does not change. But safety in investing is not just about avoiding short-term losses. It is about preserving and growing purchasing power over time. With South African inflation running persistently above money market returns in many periods, sitting in cash for too long is its own form of loss. Your money simply buys less over time without you ever seeing a negative return on your statement.

Myth 2: ‘I’ll get back in once things settle down’
This is one of the most costly assumptions in investing. Markets do not send a signal when it is safe to return. By the time the news feels better and confidence returns, prices have usually already moved. Timing the market requires being right twice: when to get out and when to get back in. Very few investors, professional or otherwise, manage this consistently.

Myth 3: ‘This time is different’
Every major market downturn feels permanent while it is happening. In 2020 it was a global pandemic with no clear end date. Before that, a financial system on the edge of collapse. Before that, the dot-com bubble bursting. Each time, the prevailing view was that the world had fundamentally changed. Each time, disciplined long-term investors were ultimately rewarded. The circumstances change. The principle does not.

 

Our View At CS Wealth (Pty) Ltd

We know that volatile markets are stressful. We speak to clients during these periods and we understand the anxiety is real. What we also know, from history and from decades of evidence, is that the investors who come out ahead are almost always the ones who kept their eyes on the long term and did not let short-term fear drive long-term decisions.

Your financial plan was built with uncertainty in mind. It was designed to work through market cycles, not just the comfortable ones.

If you are feeling unsure about where you stand, now is a good time to revisit your plan together. A short conversation can go a long way toward replacing anxiety with clarity.

Reach out to your adviser directly, or contact our office to schedule a time. We are here.

CS Wealth (Pty) Ltd is a licensed financial services provider. This newsletter is intended for general educational purposes and does not constitute financial advice. Please speak to your adviser before making any investment decisions.