With global stock markets having soared to historic highs recently, often with only brief bouts of volatility, it can be easy for investors to imagine the smooth skies we have being seeing are the norm.
This complacency is a natural reaction. When markets have climbed for years with few bumps along the way, confidence and risk appetites tend to rise, virtual ‘seat belts’ are loosened, and memories of past turbulence begin to fade.
But just as with air travel, investing is never without uncertainty. Markets move in cycles – periods of calm often give way to pockets of volatility, and sometimes sharp and sudden drops, before stability eventually returns.
As financial advisers, we are often asked when the turbulence will return. Our response is that rather trying to time market volatility, we continually focus on ensuring clients and their portfolios are ready for whatever might happen.
Preparation, not panic
Our experience over many market cycles is that a sufficiently prepared investor is not one likely to panic and make rash decisions based on emotion.
It’s the same reason airline crews run through safety demonstrations before flights, While the chance of a major incident is low, passengers who are familiar with the procedures will be better equipped to act cooly and calmy should something happen.
Even if it is just routine turbulence, passengers in those scenarios know the best course is to stay in their seats and fasten their safety belts. The role of the captain and the crew is to chart their way through the turbulence and ensure everyone gets safely to their destinations.
In financial safety drills, it’s a similar story. Advisers’ role is to prepare for every eventuality. That includes ensuring you have an adequate cash buffer to ride through any downturn without having to sell assets.
In settled conditions, advisers regularly review your asset allocation to ensure you are not taking on any more risk than is necessary to attain your goals and that you are sufficiently diversified across equities, bonds, cash and property.
Like an accomplished pilot adjusting speed and altitude to keep passengers comfortable and safe, expert advisers will also deploy methodical, disciplined portfolio rebalancing to keep you on track.
The fact is markets will do what they do, irrespective of human actions. A good adviser, in good times or bad, will keep you focused on what’s within your control. This is about preparation and purpose, not prediction and panic.
Volatility goes with investing
What you can do in the meantime is to maintain discipline, stay focused on your goals and accept that markets rarely move in one direction for long. You will feel uncomfortable, sure, but like in-flight turbulence, volatility doesn’t last forever
Perspective can help. Over the long term there is a positive return from investing in shares. But not every year is a winner. And the price of securing those long-term gains is dealing with the rocky periods mid-journey.
Here’s an example: In the 45-year period from 1980-2024 the Australian share market delivered an average annualised return of 12.7%, including dividends. There were positive returns in 33 of those years – the biggest in 1983 at nearly 67%.
Of the 12 years when our market fell, the worst was in the year of the global financial crisis, when the S&P/ASX-300 dropped 39%. But the following year, it gained 38%. In fact, more than 90% of down years in this period were followed by up years.
In the meantime, with many markets including our own recently hitting record highs, it’s quite natural to ask when the next big downturn might hit.
The simple fact is no-one knows. You can have an opinion. But as we’ve seen so many times over the years, pundits who call market tops usually get it wrong.
In any case, the time to run your pre-flight drill is not when you are worried about an imagined crash on the horizon, it’s now when you can think clearly.
Listen to your adviser
That’s why all the work your adviser does on risk assessments, scenario analysis, diversification, cash flow modelling and stress-testing is so critical. It’s why you have a financial plan – not for what we think will happen, but for what could happen.
All that planning is to ensure that when volatility does return, you already know how to respond and will be much less likely to make emotional decisions.
Airline pilots know the flight path, the weather systems, and the mechanics of the aircraft. Their role isn’t just to deliver you comfortably to your destination – it’s to keep you safe along the way. Financial advisers serve a similar role.
In calm markets, they set a course according to your goals and risk appetite. They build a diversified portfolio and ensure it stays aligned with your plan. When markets get choppy, advisers shift into “flight crew mode” – providing reassurance, context, and clear guidance based on experience, data, and strategy rather than emotion.
Rough markets aren’t something to fear. They’re just something to be ready for.
