Fear in investing is nothing new. Research in behavioural finance has shown that fear often clouds decision-making and magnifies our perception of risk. In fact, studies find that when uncertainty rises, individuals and even companies become more cautious – for example, according to a survey by the European Investment Bank, firms perceiving uncertainty as a major barrier are around 2.5 percentage points less likely to increase investment.
For individual investors, the effect is just as strong. Loss aversion was first identified by Tversky and Kahneman in their paper “Prospect theory An Analysis of decision under risk”, published in 1979. Our brains are wired to avoid pain – and when it comes to money, according to the study, the pain of losing is felt twice as intensely as the joy of gaining. This “loss aversion” bias is why so many investors sell at the wrong time or hold onto losing positions hoping they’ll recover.
Then there’s the herd mentality when markets wobble, it’s tempting to follow the crowd – even if the crowd is panicking. During crises, a small group of vocal investors can influence the behaviour of the majority, amplifying swings and volatility. In other words, fear spreads fast.
The market’s tricks and treats
A study in the International Journal of Research Publication and Reviews (IJRPR) found that around 65% of individual investors modified their assets due to market volatility, showing aggressive risk management. It’s an understandable instinct, but one that risks disrupting compounding, the snowball effect of returns growing on returns over time.
Volatility can be unsettling – like walking through a haunted house, never quite sure what’s lurking around the corner. Yet not all surprises are bad ones. The same volatility that drives markets down can also power them back up.
History has shown that markets tend to reward patience. April 2025’s sudden 10% surge in the S&P 500 came after weeks of uncertainty. Investors who stayed invested benefited from the rebound; those who fled to safety missed the treat after the trick.
Timing the market is notoriously difficult; even missing just a few of the best days can make a significant difference to overall performance, as illustrated in the chart below.
A lesson from the shadows
If the markets sometimes feel like a haunted forest, the best path forward is often to keep walking. Every correction, crash, or crisis has its own terrifying headlines – yet over time, the markets have shown a remarkable ability to recover and grow.
The immediate aftermath of a market correction may provide a sour feeling. As shown in the below chart, there were many and different reasons that made similar past episodes all seem like the end of the world at the time. However, they did have one thing in common historically, the market did tend to recover with the passage of time. This is what long-term investing is all about.
In other words, don’t let short-term scares derail a long-term plan. Investing success often comes not from dodging risk, but from understanding it – and managing it through diversification, consistency, and a disciplined mindset.
Because in the end, the biggest ghost haunting investors isn’t volatility. It’s the fear of volatility itself.
This Halloween, remember markets have their tricks, but patience can deliver the best treats. Don’t be spooked by short-term drops – stay invested, stay diversified, and let time do its magic.
As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
