4 charts every investor needs when markets fall

Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.

You are never more likely to make an investing mistake than when markets fall.

That’s when fear and loss aversion kick in, and we’ll do anything to make it stop. But acting hastily in these moments is so often exactly the wrong thing to do. History is full of occasions when it has paid off to simply stay put and wait for a recovery.

This year has been one of those challenging periods. Markets slumped after the announcement by the US of heavy trade tariffs on international counterparts. The US stock market, as measured by the S&P 500, endured its fifth biggest two-day fall in 75 years. It then posted its eighth biggest ever one-day rise after the White House announced a pause on the highest tariffs.

It has been head-spinning for investors and markets remain significantly off their highs as the picture continues to change.

What investors need is a reminder of the long-term benefits of investing, and some reassurance that things tend to work out in the end.

Here’s four charts every investor should bear in mind when volatility strikes.

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Chart 1

What it shows: This simple chart shows the total return generated by the S&P 500 - the index reflecting the giant US stock market - since 1990. The shaded areas indicate periods when the US economy has fallen into recession, which means the economy has shrunk over a six-month period or longer.

The lesson: This is a demonstration of the stock market’s ability to recover and put events that seem incredibly ominous at the time behind it. Both the dot com crash in 2000 and global financial crisis in 2008 preceded recessions and felt like extinction-level events for investors who lived through them, but both were recovered in time. Investors who hung on were rewarded with huge growth in the value of their investments in the years that followed.

Chart 2

What it shows: This chart shows the return from global markets - as measured by the MSCI World index - in each calendar year going all the way back to 1970.

The lesson: You can see at a glance that positive years in markets greatly outnumber negative ones. In point of fact, there have been 41 calendar years of gains since 1970 versus just 14 of losses. On just two occasions in the past 55 years have there been more than one negative year in a row.

That is a great argument for staying invested to capture both the highs and the lows of markets as the years pass.

It’s worth noting that the chart does not show the big losses that can happen within individual calendar years - but that in itself holds a lesson for investors. Losses tend to be made up, however bad they feel at the time.

Chart 3

What it shows: The three bars show the total return from the FTSE 100 since 1992 if the best 30 days are taken out (the top bar), the best five days are taken out (the middle bar) and if you remain invested for the whole period (the bottom bar).

The lesson: That market returns fall if you don’t include the best days is no surprise, but the lesson here is that timing the market - trying to jump in and out to get a better return - adds risk to your investing. The chart represents a worse-case scenario - you would have to be seriously unlucky to miss just the best days and none of the worst - but it is a reminder that the most simple route to capturing the potential gains offered by markets is to just stay invested.

Chart 4

What it shows: The table shows a list of the 10 biggest one-day falls for the UK stock market, measured by the FTSE 100. It then shows the three and five-year returns that were made immediately after.

The lesson: This is a reminder of the wisdom of that Warren Buffett saying: “be fearful when others are greedy, and greedy only when others are fearful.”

Fear would have been at its maximum after each of the falls listed in the table. Yet in hindsight each of them - with perhaps the exception of the fall on 11 September 2001 - represented a great opportunity to buy and make gains in the years ahead. For the rationale investor, market falls mean assets are cheaper today than they were yesterday.

• Read: What is volatility? The basics
• Read: What Warren Buffett says - and does - when markets fall
• Read: When markets wobble, stick to the facts

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns in local currency from 31.3.20 to 31.3.25. Excludes initial charge.