A steady “invest and forget” approach has delivered stronger long-term results than trying to sidestep stock market turbulence, according to new analysis.
The Fidelity study found that putting investment decisions on hold can come at a meaningful cost, with savers who wait for the “perfect” moment risking a sizeable drag on their eventual returns.
The firm examined three hypothetical investors who each saved £100 a month from 2000 to 2025, but followed different strategies when it came to market timing.
One investor kept contributing regardless of market conditions. Another switched to the perceived safety of cash whenever markets fell. The third also moved into cash during periods of stock market volatility, only returning to investing once shares appeared to be recovering.
The 25-year period covered some of the toughest tests for investors, Fidelity noted, including the dotcom crash, the global financial crisis, Brexit, the Covid-19 pandemic and a series of geopolitical shocks.
Despite the repeated reasons to pause or delay investing, Fidelity concluded that someone who carried on investing regularly through unsettling headlines and falling markets would have been better rewarded over the long run.
Its modelling assumed each person had £100 a month to either hold in cash or invest in a global tracker fund designed to mirror the performance of the MSCI World Index across the first quarter of the century.
Although all three investors contributed the same total sum, Fidelity said the timing of when their money entered the market made a significant difference to their long-term outcomes.
Calm investors: Investing £100 a month regardless of what markets were doing would have reaped rewards between 2000 and 2025
Calm Carrie
Strategy: Invests £100 every month regardless of what markets are doing.
Outcome: She builds a portfolio worth £158,025, turning £31,300 of contributions into more than five times its value between 2000 and 2025.
Nervous Nora
Strategy: Invests in months when the stock market is up on the previous month, and in other months her money goes into cash and stays there.
Outcome: She ends up with £108,434, around £50,000 less than Calm Carrie because much of her money spent years in cash rather than benefiting from market growth.
Yo-Yo Yasmine
Strategy: Invests in months when the market is up on the previous month, and in other months her money goes into cash – but it doesn’t stay there.
Once she restarts investing, she invests not just that month’s contribution but also any cash accumulated during skipped months.
Outcome: She makes £70,943, nearly £90,000 less than Calm Carrie, which reveals the cost of waiting for markets to recover then piling money in when many other investors are doing the same.
Once she feels confident enough to invest again, she has missed much of the recovery, and so repeatedly invests large lump sums after prices have risen rather than when they were lower.
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Marianna Hunt: Regular contributions means you’re buying investments at a range of prices, including when markets are lower
Get an investing habit and stick to it
Marianna Hunt, personal finance expert at Fidelity International, says: ‘Many people feel more comfortable waiting for markets to settle before investing, particularly when headlines are negative.
‘The problem is that markets often recover before investors feel confident enough to get back in and so they risk missing out on the recovery.
‘This analysis shows that delaying investment decisions can come at a real cost. Investing regularly means you don’t have to predict what markets will do next, and it allows you to benefit from opportunities that arise when prices fall.’
Hunt says when markets fall you can try to focus on what you can control rather than forecasting what might happen next.
‘For long-term investors, continuing to make regular contributions means you’re buying investments at a range of prices, including when markets are lower.
‘While it can feel uncomfortable at the time, periods of market weakness have historically often provided attractive opportunities for patient investors.’
She suggests setting up a regular savings plan, which invests automatically each month without you needing to think about it, can help to remove the temptation of dipping in and out of the stock market.
She says: ‘Having a plan and sticking to it is often more important than trying to find the perfect moment to invest.’
The Government is trying to encourage people to invest rather than hold their money in savings, although its attempt to sway behaviour by cutting the cash Isa limit from £20,000 to £12,000 for under-65s has prompted widespread finance industry criticism.
The move to slap a 22 per cent tax charge on investors who hold cash in their stocks and shares Isas has also been condemned as unnecessarily draconian, because many will be doing so for legitimate reasons not to avoid the new cash Isa rules.
Fidelity notes that UK households invest just 17 per cent of their financial wealth today, down from 23 per cent in 1999, which was a high water mark in modern records.
Meanwhile, cash holdings have risen from 19 per cent to around 35 per cent in the same period.
The company says market downturns can have a lasting impact on confidence.
Times of stress and uncertainty like the dotcom crash cause people to step away, and create behavioural barriers to investing again that mean they fail to return in time to benefit from recoveries, according to Fidelity
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