Mind the (Behavioral) Gap – Why Staying Calm Matters in Volatile Markets
Stephen O'Driscoll
With the recent increase in market volatility, it’s no surprise that many investors are feeling uncertain. The news cycle is fast-paced, full of economic headlines, geopolitical concerns, and plenty of market noise. It can be tempting to respond emotionally—to shift to cash, try to time the market, or abandon long-term plans altogether.
But before making any reactive decisions, it’s worth remembering one key truth: successful investing isn’t about reacting to short-term movements—it’s about staying the course through them.
The Power of Staying Invested
The chart below shows the performance of the MSCI World Index from the end of 2004 through to the end of 2024—a period marked by multiple global crises, including:
- The 2007–08 Financial Crisis
- The European Debt Crisis
- COVID-19 and the global economic shutdown
- Geopolitical tensions and war
- Inflationary pressures and interest rate hikes
- Most recently, the boom in artificial intelligence and the 2024 U.S. election
Despite the many setbacks, markets have continued to climb over the long term. While volatility can be uncomfortable, it’s also a normal and necessary part of investing.
Time in the Market Beats Timing the Market
When markets get choppy, many investors try to avoid losses by stepping out—waiting for a “better time” to reinvest. But that strategy can come at a huge cost. This chart shows how missing just a few of the market’s best days over a 20-year period can significantly reduce returns. A fully invested portfolio grew to €60,835 from €10,000—but for those who missed just the 40 best days, that figure dropped to €13,122.
The catch? Some of the best days in the market often come immediately after the worst.
Understanding the Behavior Gap
Even when investments perform well, investors themselves often don’t capture the full return. Why? Because of behavior—specifically, emotional decisions like panic selling, chasing trends, or trying to time the market.
This concept is known as the Behavior Gap, coined by financial author and advisor Carl Richards.
The “gap” between investment return and investor return comes down to timing decisions driven by fear or overconfidence—two powerful emotional forces.
Discipline Over Drama
The lesson? The most effective strategy for long-term investors is not to avoid volatility but to embrace it with discipline. Staying invested, sticking to your plan, and ignoring short-term fluctuations can make all the difference, provided your portfolio is fundamentally sound.
To quote financial journalist Jason Zweig:
“Investing isn’t about beating others at their game, it’s about controlling yourself at your own game.”
In the same way turbulence doesn’t mean the plane is going to crash, market turbulence doesn’t mean your investment journey is doomed. It’s part of the ride.
Final Thoughts
Markets go up. Markets go down. But long-term success is rarely about perfectly timed trades or reacting to headlines. It’s about patience, perspective, and focusing on the things you can control.
So next time the market wobbles, don’t reach for the eject button. Take a deep breath, stay the course, and speak to a professional.
If you would like to do an independent review of your portfolio reach out to me directly on 0834407829 or at [email protected]