One mistake investors should avoid in 2025

Despite market turbulence and alarming short-term losses, experts urge investors to stay invested and resist panic since this is the key to long-term investment success.

For many investors, watching the markets tumble may send them into shock and fear as they wonder whether their pension, home and children’s savings will be lost.

Even though this phenomenon pops up every couple of years, Duncan Lamont, CFA at Schroders, said it always feels different.

“Crises happen. The stock market falls 20% once every four years, on average, 10% most years. It’s easy to forget this,” he said.

Even seasoned investors may not find much comfort in this knowledge when they are in the thick of the market crumbling around them.

According to Lamont, the simple reality is that the stock market has tremendous power to help grow wealth in the long run, but short-term volatility and the risk of falls are the price of the entry ticket.

Based on the MSCI World index, the global stock market has more than doubled the value of your savings in the last five years, even after its recent hit.

Looking at the data for the five years to 4 April 2025, you’d only be up 14% if you’d sat in cash. $10,000 (R183,110) invested in the stock market would be worth $20,700 today (R379,041).

However, sitting in cash, you would only have $11,400 (R208,768). That means that you would have lost out on around R170,000 by not investing or disinvesting.

“It takes incredible self-control to be so objective and emotionally detached,” Lamont said. While it may be easy to say that you shouldn’t worry about the stock market, that is not how most people are wired.

However, investors can and should turn to objective, data-driven analysis to help temper that emotional response, shifting from a knee-jerk reaction to a more logical and reasoned one.

For most investors, the best course of action is to stay calm, stick to your plan, and, rather than be scared by volatility, be alive to the opportunities that it may present.

The importance of staying invested

Lamont pointed out that, taking world stock markets, as represented by the MSCI World Index, 10% falls happened in 30 of the 53 calendar years before 2025. This includes 2015, 2016, 2018, 2020, 2022, and 2023 in the past decade.

More substantial falls of 20% occurred in 13 of the 52 years, occurring on average once every four years. But if it happens this year, it will be four times in the past eight years: in 2018, 2020, and 2022.

Despite these regular bumps, the United States market has delivered strong average annual returns over these 53 years.

Lamont also noted that although stock market investing is risky in the short run, it stabilises over the long run – unlike cash.

Using almost 100 years of data on the United States stock market, Schroders found that if you invested for a month, you would have beaten inflation 60% of the time but fallen short of it 40% of the time.

This is a similar success rate to cash. But, if you had invested longer, the odds would shift dramatically in your favour. On a 12-month basis, the stock market has beaten inflation 70% of the time.

Importantly, 12 months is still the short run for the stock market. “You’ve got to be in it for longer to benefit most. On a five-year horizon, that success rate rises to nearly 80%.”

“At 10 years, it is approaching 90%. And there have been no 20-year periods in our analysis when stocks have failed to beat inflation.”

Losing money over the long run can never be ruled out entirely and would be very painful if it happened to you. However, it is also a very rare occurrence.

“In contrast, while cash may seem safer, the chances of its value being eroded by inflation are much higher.” The last time cash beat inflation in any five years was from February 2006 to February 2011, a distant memory.

Lamont also stressed that being spooked by volatility could cost you in the long run. The stock market’s “fear gauge”, the Vix index, has recently spiked.

The Vix measures the amount of volatility traders expect for the United States S&P 500 index in the next 30 days. “However, historically, it would have been a bad idea for investors to sell out during periods of heightened fear.”

Schroders looked at a switching strategy that sold out of stocks (S&P 500) and went into cash daily whenever the Vix was above 33, then shifted back into stocks whenever it dipped below.

Since 33 is a level that has only been above 5% of the time, they used it to represent a “high” reading. Ignoring any costs, this approach would have returned 7.0% a year.

This significantly underperformed a strategy which remained continually invested in stocks, which would have returned 9.7% a year, again excluding costs.

Lamont cautioned that if you get nervous quickly and are tempted to sell whenever the Vix goes above average, you would have fared even worse.

The graph below shows the total return index of South African equities, highlighting market drawdowns since the dot-com bubble of the late 1990s.

During every crisis, the prevailing pessimism following significant market declines makes attractive prospective returns feel highly unlikely. And yet, over time, the market rises to surpass the previous high-water mark (the red areas).

As hard as it may feel, remaining invested through volatile periods and not giving in to the temptation to follow the herd to perceived safety ensures participation in recoveries, essential drivers of long-term returns.

Going forward

Investing is personal, and you and your financial adviser are the only people who know what is right for you. “No two individuals or circumstances will be identical.”

“But in many cases, the right response will likely be to stay calm and stick to your plan.” As with all investments, the past is not necessarily a guide to the future.

However, history suggests that investors would have lost out considerably if they’d responded to stock market risk by making knee-jerk reactions in the heat of the moment.

“There is always a reason to worry, but in the long run, stocks have beaten bonds, which have beaten cash. One silver lining for equity investors is that the market declines mean any cash you consider investing will go further.

Valuations have cheapened and, for non-United States markets, are now cheap compared with history. Not overly so, but bargains can be found.

Even the United States, so long an expensive outlier, is fast converging on more neutral valuations vs history. Given the policy uncertainty and President Trump’s use of tariffs as a negotiating tool, there are more unknowns than usual.

However, opportunities are emerging for long-term investors with cash on the sidelines. A policy U-turn could see a rapid recovery in markets.

As markets continue to be rattled by tariff disputes and compounded by local political uncertainty, Allan Grey analyst Stephan Bernard said you may be tempted to switch to lower-risk assets or to disinvest.

“If you find yourself on the verge of making a panicked decision to safeguard your investment, reflect on whether your personal circumstances, investment goals, or time horizon has changed. If not, it may be better not to react.”

History reinforces the lesson that long-term value is created by investing in uncertainty and remaining invested through it.