By selling all their shares, the investor locks in losses on some shares, and triggers a capital gains tax bill on others that had done well over the years.

Worse, the investor misses the market’s big recovery days over the next few weeks as the bulls return. Years later, the investor rues their decision to sell shares just as the market bottomed.

This hypothetical example might describe the experience of some investors during sharemarket volatility in April 2025 when President Trump’s tariff policy triggered large falls in global equity markets and high volatility in the S&P/ASX 200 Index that month.

The S&P/ASX 200 Index slid in the first few days of April, extending falls during February and March [1]. Many Australians watched the value of their share portfolio and superannuation decline as local and global equity markets slumped.

But from their April low, Australian shares rallied 15% [2] , reinforcing the strategy of investors who decided to ride out the market volatility and not sell. 

Not all recoveries follow this pattern. It took more than a decade for the Australian sharemarket to regain its previous high after the 2007-09 Global Financial Crisis [3]. 

Also, every investor is different. A retiree who lives off their portfolio income may have different needs to a young investor who is accumulating wealth over decades, has a longer time horizon to recover from short-term market losses, and uses periods of volatility to buy rather than sell. 

This article does not suggest investors avoid selling during market volatility - or that they do nothing. For some, it might be the wise choice. Rather, the article highlights some things investors should think about during volatility, including seeking financial advice before making sudden investment decisions.

Waterhouse noticed that some retail investors were “extremely concerned” about the prospect of further losses, so made quick decisions to sell.

“It’s been shown over the years that it’s very difficult to time markets,” says Waterhouse. “For many investors, it’s better to have a long-term strategy rather than try to second-guess short-term market events. Sometimes, it’s best just to switch off media for a while and not listen to all the negative news.”

Waterhouse says it’s important that new investors understand volatility is a feature of sharemarket investing and that they are prepared for higher volatility this decade, amid heightened geopolitical and macroeconomic risk.

“The key is having a financial plan you are really comfortable with, and planning for periods of market volatility within that plan,” she says. “For example, the plan might call to have some cash available to buy stocks during market volatility when they trade at lower prices. Good planning can help avoid rash decisions.”

Waterhouse notes the possibility that some investors who sold might have crystallised losses and missed the market’s recovery in mid-April. “It was a good lesson that markets tend to recover, although not all recoveries are that fast.”

“Trump’s on-and-off-again tariffs have no clear direction and companies are struggling to forecast growth or earnings,” she says. “Until we see firm tariff amounts and implications without exemptions and delays, we may continue to see heightened volatility for a little while to come.”

Wulff says investors should set up their portfolio to weather “news and noise” storms that occur during high market volatility. In Wulff's view, “If investors panic sell, they are likely swaying from their core investment strategy, and this might lead to unfavourable outcomes for their portfolio like missing the upside recovery.” 

She adds: “We suggest to clients and beginners to stick to their investment strategy and not allow news and noise to impact decisions. Some double-digit falls in a session have been followed by greater recoveries the next day, which signals just how volatile the markets are right now. 

“The best thing an investor can do is remind themselves of their investment goal; ensure they have a well-diversified portfolio; and do research to determine if their stocks have downside exposure to macro factors like tariffs, before rushing to sell.”

Popat observed that Australian shares outperformed cash 85% of the time over seven-year rolling periods in the 30-year period that Popat studied (to March 2023). There were times when cash outperformed equities, but they tended to be short-lived. 

Popat stresses that choosing different timeframes can produce different results. But the core messages from his paper were clear:

• Trying to time the market based on short-term market events is difficult and can lead to long-term underperformance
• Historically, the Australian sharemarket delivers positive returns over long periods, despite its unpredictable temperament on any given day
• The possibility of negative market returns diminishes as the investment time horizon gets longer
• The compounding effects from Australian shares over long periods are significant.

Popat says his research reinforces the power of long-term investing rather than short-term market timing. “Investing for the long term and staying the course can be the key to achieving wealth-creation objectives.” 

He adds: “The key and clear conclusion from this is that time in the market matters more than timing the market. The compounding results over 30 years (from Australian shares in the study period) were phenomenal. We have no certainty of a repeat of the previous 30 years' performance over the next 30 years, though to paraphrase an unknown author of a famous quote, "[history] does often rhyme." 

Dale says this pattern of retail investors buying shares during market dips has become more apparent since 2020, according to her analysis of nabtrade data on trading volumes. Dale adds that “nabtrade had its biggest trading day ever when our sharemarket fell after Trump’s ‘Liberation Day’. The vast majority of that trade was buying. The same was true of the COVID-19 pandemic and market falls in 2020.”

Young investors, in particular, took advantage of market falls in April to add sharemarket exposure through Exchange Traded Funds (ETFs). “It was very noticeable from our data that growth-focused investors used ETFs to build their market exposure rather than choose individual stocks.”

The spike in ETF usage on nabtrade during market volatility, says Dale, challenges the view that ETFs are primary used in long-term, buy-and-hold strategies. “We saw a big increase in investors using ETFs to take advantage of short-term market moves.”

Dale believes there has been a change in investor mindsets about volatility. “More people seem to view volatility as a chance to buy at lower prices, rather than run from it. Of course, there will always be investors who panic when markets fall, and buying might not always be the best strategy. But our data suggests investors are much more focused on opportunities during volatility these days.”

Like other experts interviewed for this article, Dale encourages investors to have an investment plan so that they can weather market volatility or capitalise on it. “If you’re unprepared for volatility, you’re unprepared for investing,” she says.

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[1] The S&P/ASX 200 Index fell from 8,558 points on 14 February 2025 to 7,343 points on 7 April 2025. Source: Market Index.

[2] The S&P/ASX 200 Index rallied from 7,343 points on 7 April 2025 to 8,274 points on 14 April 2025, as this article was written. Source: Market Index.

[3] The S&P/ASX 200 surpassed its October 2007 high in January 2020. Source: Yahoo Finance.

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