The Chinese proverb – “may you live in interesting times” – has often been seen as a curse rather than a blessing.

Given the current geopolitical climate, it’s hard to deny that we are living in interesting times.

Furthermore, the effects of last year’s events on stock market values can be described in much the same way.

According to Yahoo, the spread between the highest and lowest values of the S&P 500 over the last 12 months is 44%. That’s a high level of volatility in such a short period.

You may perceive such volatility as something to fear. In reality, remaining calm in the face of volatility is a key factor in long-term investment success.

Volatility is a natural feature of stock markets

Whether you’re investing in the UK or the US, market fluctuations are inevitable.

Company performance will be affected by external factors, such as:

  • Inflation driving up business costs
  • The economic conditions in different countries and regions
  • Geopolitical concerns such as military conflicts or regional tensions.

Internal factors specific to companies and sectors can also have a bearing on the value of shares. These will include:

  • Business performance
  • Specific issues affecting whole market sectors
  • Competitor activity.

All these factors, and more, can create volatility in individual share prices. If you apply this across different markets and sectors, you can start to see why volatility is inevitable.

Differentiating between risk and volatility

There’s a tendency to see investment volatility as a risk, and to treat it as such.

Clearly, the level of risk you are prepared to achieve your long-term investment goals is an important factor in your strategy.

But volatility only becomes a serious risk through your reaction to it.

For example, by selling investments when market volatility causes the value of stocks to fall precipitously, you risk locking in considerable losses.

Similarly, if you see any kind of volatility as a threat to your wealth, you could miss out on growth opportunities by only investing in low-risk options. By doing so, you could actually end up suppressing your wealth rather than growing it.

US markets have averaged 10.41% annual returns over the last 100 years (January 2026)

To understand how external events create volatility in markets, it can be instructive to take a long-term view. Doing so highlights the resilience of markets specifically, and the US financial system more generally.

Consider some of the huge events that have occurred over the last 100 years, many of which have been unprecedented and potentially cataclysmic.

The Wall Street Crash in 1929, followed by the Great Depression of the 1930s. The Second World War, the oil crisis in the 1970s, 9/11, the Global Financial Crisis in 2007/08, and the Covid pandemic.

Yet despite those events, and the volatility they created in investment markets, according to Official Data, the S&P 500 produced an average annualised return of 10.41% over the last 100 years.

This means that if your great-grandparents had had the foresight to invest $100 on your behalf in 1926, it could now be worth over $2 million today.

A century of past performance demonstrates that stock market investment has produced healthy long-term returns, despite the unpredictability of external events.

Don’t get spooked by “billions wiped off…” headlines

The media loves bad news. It sells papers, drives website traffic, and boosts audience figures.

To create a good headline, financial journalists and commentators are always quick to extrapolate a sudden market fall into an alarming loss of share value.

That’s why so many headlines, such as these from MSN and NBC, cite “billions wiped off” the value of shares.

Indeed, you will even see projected losses of trillions quoted, such as those from Reuters and the Telegraph, to name but two.

Markets recover, often as quickly as they have fallen, yet you’ll rarely see “billions added on” headlines.

When you see bad news trumpeted, remember that history shows that if you sit tight and do nothing, values will usually return to their previous level.

You should see volatility as an opportunity, not a threat

Perhaps the best way to react to alarming headlines is to look to benefit from the volatility in the market. It can provide a great buying opportunity, as reduced stock values may well allow you to buy into quality companies at a lower price than usual.

At a more granular level, individual and sector values can fluctuate wildly as they are affected by internal and external events.

By not overreacting to volatility and maintaining a well-diversified portfolio, you can ride out the highs and lows and potentially benefit from a long-term perspective.

Trust your long-term plan

During times of volatility, you may be tempted to make major changes to your investment strategy.

Any effective and robust plan should have an element of investment volatility factored into it. Because of this, making short-term adjustments is likely to lead to a greater risk of losing money.

By holding assets for the long term, you reduce the risk of short-term market turbulence blowing your investment plans off course.

You will also benefit from the long-term compounding effect of dividend payments.

There may well be times when changes to your circumstances and objectives will necessitate adjustments to your investment strategy. But these changes should be driven by detailed analysis and informed decisions, rather than simply a panicked reaction to market volatility.

Get in touch

If you are a British expat living in the US and would like to talk about your own investment strategy and financial arrangements, please get in touch to arrange an exploratory Zoom call to discuss your options.

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