Seeing your investments fall in value can feel unsettling. Headlines turn negative, super balances dip and portfolio values slide. These reactions are common, particularly for newer investors.
This guide explains why market ups and downs are a normal part of investing, and how long-term investors have historically navigated periods of uncertainty.
The focus here is on avoiding reactions to short-term noise. It's about understanding volatility, recognising emotional triggers and using simple frameworks that many long-term investors, including the Pearler community , use to stay aligned with their goals.
Understanding market volatility
Markets move up and down as new information emerges. These price swings are known as volatility. They reflect how investors collectively respond to changing expectations about growth, profits, interest rates and risk.
In Australia, the share market has experienced many downturns, including the early 2000s tech crash, the Global Financial Crisis and the COVID-19 shock. While these periods felt intense at the time, markets continued operating and eventually recovered over longer periods.
Volatility is not a malfunction. It's a built-in feature of markets that price risk and uncertainty in real time.
Why markets fall
Market declines are usually caused by a mix of factors rather than a single event. Common drivers include:
Economic data and outlook changes
Reports showing higher inflation , rising unemployment or slowing economic growth can affect expectations about company profits. When future earnings look less certain, share prices can fall.
Interest rate movements
Higher interest rates can reduce borrowing and spending across the economy. They also make lower-risk assets like cash and bonds more attractive, which can temporarily pull money away from shares.
Global events and uncertainty
Wars, pandemics, political instability and trade disputes can disrupt supply chains and business confidence. Even when the long-term impact is unclear, markets often react quickly to uncertainty.
Company-specific news
Earnings misses, management changes or regulatory issues at large companies can affect entire sectors, particularly in a concentrated market like Australia.
Investor behaviour and sentiment
Markets are influenced by human behaviour. Fear can spread quickly, leading to short-term overreactions where prices fall faster than underlying fundamentals change.
Experiencing these movements absolutely doesn't mean an investing strategy has failed. It means markets are processing new information.
Why sticking to a long-term plan matters
When markets fall, selling can feel like a way to regain control. Historically, however, many investors who sold during downturns locked in losses and missed later recoveries.
Long-term investing relies on time in the market rather than timing the market . A clear plan provides context during volatile periods and helps separate temporary market moves from long-term objectives.
Many Pearler investors build plans around automation and consistency, not because markets are predictable, but because behaviour is often the biggest driver of outcomes.
Emotional responses to falling markets
Money and emotion are closely linked. Behavioural finance shows that people feel losses more strongly than gains of the same size. This is known as loss aversion.
During market downturns, this can show up in several ways:
- Anxiety about checking account balances or super statements
- A strong urge to take action, even without new information
- Increased focus on negative headlines or worst-case scenarios
- Comparing decisions to friends or online commentary
- Difficulty sleeping or concentrating on non-financial tasks
These reactions are normal. They're part of how the brain responds to uncertainty and perceived threats. The challenge is that markets may recover before emotions settle.
Recognising emotional responses doesn't remove them, but it can reduce the chance they drive rushed decisions like panic selling . Many experienced investors focus on creating systems that limit emotional interference during stressful periods.
5 practical ways investors manage volatility
Many long-term investors use simple, repeatable structures to help them stay invested during turbulent periods.
1. Revisit long-term goals
Market movements don't usually change why people invest. Goals like retirement, long-term flexibility or future milestones often remain the same, even when prices fall.
Writing goals down and revisiting them during downturns can help anchor decisions to purpose rather than price movements.
2. Use regular investing and automation
Investing fixed amounts at regular intervals, often referred to as dollar cost averaging , spreads investments across different market conditions. This reduces reliance on market timing and helps smooth entry points over time.
Pearler investors often use automation to keep investing consistently during both calm and volatile periods. Automation removes the need to make repeated decisions during emotional moments.
3. Reduce exposure to short-term noise
Constantly checking portfolios or news updates can amplify stress. Many long-term investors limit how often they review balances. Instead, they focus on scheduled check-ins, such as quarterly or annual reviews.
This approach doesn't ignore risk, but it avoids unnecessary emotional strain from daily price movements.
4. Create a cooling-off period for changes
Building in a pause before making changes can help. A set waiting period allows emotions to settle and decisions to be revisited with clearer thinking.
This simple rule can prevent impulsive actions during moments of heightened stress.
5. Use history and community for perspective
Looking at past market downturns and recoveries can help put current conditions in context. Markets have faced uncertainty before and continued operating.
Many investors also find it valuable to discuss their experiences in communities like Pearler’s , where real people share how they approach volatility over the long term.
Hypothetical case study: Jess
Jess is a 32-year-old teacher from Newcastle. She had invested $18,000 across shares and ETFs, aiming to build wealth over time.
In early 2020, her portfolio fell by about 25%, dropping to roughly $13,500. Rather than making immediate changes, Jess revisited her goals and reduced how often she checked her balance. She continued investing $300 per month using a regular investing approach.
By December 2021, after contributing around $6,300 and as markets recovered, her portfolio value had risen to about $22,800. Outcomes vary and returns are never guaranteed, but the experience helped Jess build confidence and stay committed to her long-term objectives.
Australian context and superannuation
Superannuation is designed as a long-term retirement system. Accessing super early is generally restricted and can involve tax and legal consequences.
The Australian Taxation Office (ATO) frames super as a long-term vehicle, with tax settings designed to reward staying invested over decades. Short-term market movements can feel worrying, but super investments are typically structured with long time horizons in mind.
Managing financial stress
Periods of market volatility can increase financial anxiety. Limiting exposure to sensational news, maintaining daily routines and talking through concerns with people you trust can help.
If financial stress begins to affect your sleep, mood or wellbeing, organisations such as Beyond Blue and the Australian Psychological Society provide support. Looking after your mental health is just as important as managing money.
Key takeaways
- Market volatility is normal: Price movements reflect how markets process new information and uncertainty. They're not a sign that investing has stopped working.
- Long-term plans provide structure: Clear goals and strategies help investors stay grounded when short-term conditions become noisy or uncomfortable.
- Emotions influence decisions more than data: Anxiety and fear are common during downturns. Systems and routines help reduce emotional decision-making.
- Consistency often matters more than timing: Regular investing and automation can reduce the pressure to predict market movements.
- Support and perspective make a difference: Community discussion, historical context and professional guidance can help you navigate uncertainty more calmly.
The bigger picture
There's no single approach that suits every investor. What has remained consistent over time is that patience, structure and perspective tend to matter more than reacting quickly to short-term market movements.
Markets will continue to rise and fall. Staying clear on what can be controlled, such as behaviour, time horizon and process, helps keep those movements in context.
General information disclaimer
This article is for general informational purposes only and does not take into account your objectives, financial situation or needs. Investing involves risk, including the risk of loss. Rules, products and market conditions can change, so consider seeking advice from a licensed professional and checking relevant official sources before making decisions.
