What do investors do during market volatility?

Brad Holland

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Journalists and media outlets like nothing more than market volatility and warnings of falling share prices or turmoil for investors. While this news can be unsettling, it is often looked at without any broader context. Upward and downward market movements are par for the course with investing, so here we look at typical responses to market volatility and how much attention investors actually pay to the media hype.


While a 2% or 3% movement within a day in the stock market is of course significant, this type of drawdown would be expected two or three times per year and is not dramatic by historical standards.

Investor responses to market volatility often come under scrutiny, whether it’s an academic interest in the psychology of investing, or individuals curious about the decision-making of others when faced with stock market turbulence (should they stay or should they go?).

At Nutmeg, we have been investing on behalf of our clients since September 2012. We have taken a look at data on our customers’ responses to market volatility and it provides interesting insight. As the chart below shows, there have been five substantial moments of “above threshold” turbulence since 2012. These were: worries about Greek debt (June 2013), the Scottish Independence Referendum (September 2014), the China market bubble (September 2015) and the 2018 market correction activity (February 2018 and October 2018). The flatter orange line on the chart represents the threshold (1.5 times the normal monthly volatility) to highlight slightly more unusual turbulence.

The average event involved an 8.7% FTSE 100 loss over a four-week period, with the largest four-week loss being 10.1% and the smallest 7.7%. Overwhelmingly, investors with Nutmeg don’t make changes to their investment strategy over the next four weeks – on average 97.8% did nothing at out of the ordinary.

Of those that do act, around 2% of investors alter their portfolio risk level, with more customers increasing their portfolio risk levels (1.1%) than decreasing them (0.9%). Only 0.2% of investors withdraw funds completely, although male investors are over four times more likely to withdraw their investments than female investors.

What about Brexit?

Although the Brexit referendum did not result in the equity market losses seen during the above five events, it was a major news event and the cause of much anxiety for investors. But not, apparently, for Nutmeg investors, as 97.6% of them did nothing out of the ordinary with their money. Again, female investors showed the least reaction – 98.5% of female investors did nothing, compared to 97.3% of male investors.

What do we learn about responses to market volatility?

The key message is that Nutmeg investors (and likely investors in general) behave in line with their own investment goals. They have already set themselves investment goals; agreed the level of risk that they are willing to take to achieve those goals over a given time-frame; entered into an agreement with Nutmeg as their investment manager; and set up direct debits for regular contributions into their product.

And when the ‘rubber hits the road’ and the going gets tough, the vast majority of Nutmeg customers do not deviate from their plans. They accept, like most long-term investors, that volatility is a part of investing and keep their eye on the long-term goals they have set.

It looks like Nutmeggers are really committed to their investments and their goals. This is evidence that the ‘fear and loathing’ associated with equity market turbulence is largely driven by media hype, not by investor behaviour. Well done Nutmeggers!

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.


1. Nutmeg investor trend data: Analysis of anonymised Nutmeg client behaviour during the period September 2012 to November 2018. Data analysed the percentage of clients that increased their risk profile, decreased their risk profile, withdrew investments and those that took no action beyond normal monthly average withdrawal rates.
2. Market events: Market performance data sourced from Bloomberg.

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Brad Holland
Brad is Nutmeg’s director of investment strategy. A veteran – 28 years at last count – in financial markets, he started his career as a professional economist at the Australian Reserve Bank. He now specialises in economic and financial market strategy within investment management. Brad studied post-graduate quantitative economics at the University of Queensland, Australia. Despite living in London for 20 years now as a naturalised British citizen, he’s still not quite ready to support England-v-Wallabies.

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