Volatility explained: making sense of market moves

Read the financial news on any given day, and you’ll likely see headlines about stock markets rising or falling. Tariffs, elections, wars, energy shocks, or even a change in consumer spending habits – all of these send prices up or down. This movement is known as volatility, and while it can be unsettling, it’s also a normal part of investing.

What is market volatility?

At its simplest, volatility is a measure of how much the value of an investment – or a whole market – moves up and down over a period of time.

Several factors can trigger volatility:

• Commercial pressures, such as supply chain disruptions or unexpected corporate results.
• Political events, from leadership changes to trade policies.
• Economic shifts, like interest rate rises or inflation surges.
• Environmental factors, such as natural disasters or global pandemics.

High volatility means wider swings in prices and greater unpredictability, making investments riskier in the short term. For example, when tariffs were introduced on certain goods during the Trump presidency, markets reacted sharply. Investors had to weigh the impact on trade, company profits, and consumer demand, creating turbulent price movements.

In other words, volatility is the market’s way of reacting to new information, good or bad.

How long does volatility last?

Volatility never disappears entirely. It’s an ongoing feature of markets, and prices are constantly moving as companies evolve, economies change, and global events unfold.

That said, periods of high volatility – where markets swing more dramatically than usual – tend to come and go. Over time, as events play out and confidence stabilises, volatility usually returns to more normal levels.

Should I take my money out when markets are volatile?

It’s a natural reaction to feel uneasy when markets fall. Many investors are tempted to pull their money out at the first sign of trouble - and you’re completely entitled to do so. But history shows that reacting emotionally often does more harm than good.

Here are some guiding principles:

• Stay invested. Selling when markets are down locks in losses. By remaining invested, you give your portfolio the chance to recover when markets stabilise.
• Think long term. Volatility is unsettling in the moment, but markets have historically rewarded patience over decades.¹
• Diversify. Holding a mix of assets (different sectors, geographies, and investment types) can smooth out the impact of volatility on your portfolio.
• Know your risk level. If market swings leave you awake at night, you may need to adjust your portfolio to better match your risk tolerance.
• Seek advice. A financial adviser can help ensure your investments are aligned with your goals and risk appetite, and guide you on whether remaining invested or selling is the right choice for your circumstances.

To feel more at ease both emotionally and financially, it’s better to respond thoughtfully than react impulsively - remembering that periods of volatility can also present opportunities as well as risks.

The bottom line

Markets move for many reasons – some predictable (such as just before or after key economic announcements) others sudden (like an unexpected supply chain disruption). Volatility reflects that movement, and while it can be uncomfortable, it isn’t the enemy of long-term investors. In fact, short-term fluctuations often create opportunities for those who keep their cool.

By maintaining a long-term perspective, diversifying, and understanding your own appetite for risk, you can navigate volatility without losing sight of your goals. Because in investing, patience and perspective are often the best tools you have.

Issued by Towers Watson Investment Management Limited (TWIM), registered office Watson House, London Road, Reigate, Surrey RH2 9PQ. TWIM is authorised and regulated by the Financial Conduct Authority, firm reference number 446740. TWIM is the Alternative Investment Fund Manager (AIFM) for Alliance Witan PLC. TWIM is part of Willis Towers Watson.
Alliance Witan PLC is listed on the London Stock Exchange and is registered in Scotland No SC1731. Registered office, River Court, 5 West Victoria Dock Road, Dundee DD1 3JT. Alliance Witan PLC gives no financial or investment advice. © Copyright Alliance Witan PLC. Tel: 01382 938320.
 
This information is for informational purposes only and should not be considered investment advice. The views expressed are the opinion of TWIM and are not intended as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell any securities. The views expressed were current as of end July 2025 and are subject to change. Past performance is not indicative of future results. A company’s fundamentals or earnings growth is no guarantee that its share price will increase. You should not assume that any investment is or will be profitable. Information contained herein has been obtained from sources believed to be reliable but not guaranteed.

1. Cambridge Judge Business School, Report (23 September 2025): Stocks have far outperformed over the past 125 years https://www.jbs.cam.ac.uk/2025/report-stocks-have-far-outperformed-over-the-past-125-years