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Shares Magazine
The market reaction to the US midterm elections offered a salient reminder of how fast-moving markets can be.
At first on 4 November there was selling as investors reacted to the implications of a Democratic blue wave for the roll-out of AI infrastructure, with many Democrats standing on a platform of halting or slowing the construction of data centres in their states or districts.
That then switched to widespread gains as the decisive nature of the results reduced the risk of an uncertain period when the outcome would be contested or disputed.
Then on 5 November, appropriately enough for a UK audience, there were fireworks as AI concerns came back with a vengeance. By the close of trading on that day, the Nasdaq index was down more than 5.5%, wiping out more than $2.5 trillion worth of value.
The obvious instinct in such a scenario is to do something with your investments. But for a long-term investor the best of course of action is often to do nothing and certainly not to make any hasty decisions.
As I write the market has already recovered a good portion of its 5 November losses, even if it would be unwise to make any definitive predictions about what might come next.
The value of staying invested during periods of market turbulence is underlined by some long-running research, which has previously been highlighted in these pages but bears repetition.
BlackRock regularly runs the numbers on how much a $100,000 investment in stocks would have been affected by missing just a handful of the market’s best days over a two-decade period.
In the latest exercise, running from 1 January 2006 to 31 December 2025, it found that missing just the five best days would have led to a 40% smaller sum than if you had stayed invested through the period, while missing the 10 best days would have cut the value of a hypothetical portfolio in half.
Where this is particularly relevant to recent events is that often the market’s best days can follow its worst and occur when markets are volatile. So, selling out of investments in attempt to avoid losses will usually have the reverse effect.
It’s why many investors subscribe to the maxim that ‘time in’ the markets beats ‘timing’ the markets.
It doesn’t mean putting your head in the sand, it’s good to stay informed and keep tabs on how the funds or shares you hold are performing. Particularly, say, if you are nearing retirement or are planning to tap into your investment pot soon for some other reason.
But for those with time on their side, accepting that corrections are a normal occurrence in financial markets has proven to be a sensible perspective in the past.
Tom Sieber: Content Editor
Tom Sieber is AJ Bell's Content Editor. He was previously the Editor of Shares Magazine. He has been with the business since 2012.
Tom is a regular contributor to the AJ Bell Money & Markets...