Investor Behaviour During Market Volatility

Why Behaviour Matters as Much as Strategy

Investment outcomes are shaped not only by markets and products, but by investor behaviour, particularly how investors react during periods of volatility.

Common Behavioural Patterns

During sharp market declines, investors often feel pressure to redeem investments out of fear, while during rapid rallies, there can be a tendency to chase recent performance. Both patterns can work against an investor's original plan.

Recency Bias

Recency bias is the tendency to give more weight to recent events, such as assuming a recent market fall or rally will continue indefinitely, rather than viewing performance over a full market cycle.

Herd Behaviour

Herd behaviour describes the tendency to follow what others are doing, such as redeeming or investing simply because many other investors appear to be doing so, rather than based on one's own goals.

Why Staying Invested Through Cycles Is Often Discussed

General investor education materials often highlight that markets have historically moved through cycles of decline and recovery, and that exiting during a downturn can lock in losses and forfeit potential participation in a subsequent recovery. This is general information and not a prediction of future market behaviour.

A Disciplined Approach

Maintaining a written goal, a defined asset allocation, and a periodic (rather than reactive) review schedule can help investors avoid decisions driven purely by short-term market sentiment.

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