Volatility around tax year end: a strategic moment for investors

The tax year end is approaching, with the last day being the 5th of April. Meanwhile, markets are experiencing some volatility. So, how should we react?

We have previously covered some important tax year-end considerations in detail. In short, it’s a good idea to consider using tax-free allowances whenever you can, so that your funds have the best chance to grow free of tax.

It just so happened that the end of the tax year coincided with increased market volatility, which may impact our decision about whether it is a good time to invest. So, how have the markets fared this year? 

Chart 1: 2025 year-to-date past performance of Moneyfarm portfolios. Risk levels 5/7, 6/7 and 7/7. Source: Moneyfarm.

It is clear from this graph that, from a short-term perspective, the performance of our P5, P6, and P7 portfolios in 2025 reflects market volatility.

However, considering that the S&P 500 has declined by approximately 4.3% year-to-date, our globally diversified portfolios have demonstrated resilience.

As always, past performance is no indicator of future returns.

However, zooming out and extending the timeframe to reflect the last 5 years (see the chart below), and putting things into perspective, we are reminded that volatility is ever present, and despite a bumpy road, the portfolios have been trending upwards. 

Chart 2: 5-year (simulated) past performance of Moneyfarm portfolios. Risk levels 5/7, 6/7 and 7/7. Source: Moneyfarm.

It would be unfortunate to be able to contribute towards your future, be ready to deploy funds to meet your goals, but lose the chance because markets are going through a tough period. Remember, once an allowance is lost, you can never get it back.

There are a few points to make.

Time in the market beats timing the market

You might be sick of hearing this over and again, but there is good reason to keep bringing this up. Staying invested through all market periods has historically been proven a winning strategy. By contrast, trying to escape volatile periods amplifies the risk of getting the exit point wrong, the re-entry point wrong, and thus missing out on the next recovery.

Chart 3: Sources of Return Variation. Source: Morgan Stanley Wealth Management.

As we can see, market timing accounts for just 2% of long-term returns. Sure, in the immediate period after first investing, timing might have a more pronounced effect on your current performance, however given an appropriately long-term view – which is how investments are meant to be viewed – being in the right mix of assets is actually the most important factor. The asset allocation strategy is precisely what we do for you, managing your portfolio in line with your risk profile, timeframe, and goals.

Waiting for markets to move up before feeling comfortable in investing usually means that you have already missed on the best days, and that has huge implications for long-term returns. For example, amid the currently heightened volatility, S&P 500 posted its best day for 2025 on the 14th March, rising by over 2%. There is no simpler way to participate in the best days other than always staying invested.

Investors tend to get market timing wrong. History proves that successfully and consistently beating the market is very unlikely, therefore making it a flawed strategy that can ultimately hurt your returns.

The chart below provides an indication of just how much your returns can suffer from missing out on the best days in the market. For example, missing only the 15 best days in the market between 1990-2018, your annualised return would fall from 9.9% to 6.3%. 

Annualised Total Returns of S&P 500 (1990-2018). Source: Morgan Stanley Wealth Management.

For context, a 9.9% annualised return turns £10,000 to £160,000 after 28 years, whereas a 6.3% annualised return turns £10,000 to £58,300 after 28 years. This really shows the power of compounding, and not missing out on the best days is far more important than trying to avoid the bad ones. Don’t be obsessed with trying to avoid corrections. As the legendary American investor and fund manager Peter Lynch said: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” 

Valuations are now cheaper – however, focus on the long-term plan

We have already made the point that markets have recently taken a hit. For those investors who are in it for the long term, whether just starting off or already being invested, this dip is just another step in the long-term strategy.

Sticking to your plan and buying consistently would at times allow you to benefit from lower prices over time. This is one of those times where you can potentially buy cheaper.

Also, for those holding cash on the sidelines, moments like this could be seen as an opportunity to enter at a discount. As always, timing the market is tough, but downturns have historically been where long-term investments find value.

Meanwhile, fixed-income investments – a core part of most of our portfolios – can serve as a valuable diversifier. With higher yields available in today’s environment, bonds and other fixed-income assets are worth considering for stability.

You might also consider watching the recording from our recent webinar on our Strategic Asset Allocation 2025. The link on youtube can be found here.

To summarise, we are going through a period of uncertainty and sentiment is somewhat worsened. However, the macroeconomic picture is still robust, with still-positive economic growth and interest-rates widely viewed as being on a downward path. So, amid this uncertainty and volatility, long-term expected returns remain attractive across equities and fixed-income alike.

Pullbacks in markets are normal

No one ever said that sticking to your long-term strategy is easy. But, making heat-of-the-moment, knee-jerking decisions, and changing your plan at the first sign of trouble creates the risk of missing the good days and disturbing your long-term compounding effect, as previously discussed.

This resilience, the will to stay invested during markets of turbulence and downside volatility, is the price to pay in expectation of long-term outperformance.

If investing was easy, everyone would have been a millionaire. It cannot be overstated: there is no reward without risk. We do like this quote from legendary investor Warren Buffet: “The stock market is a device that transfers wealth from the impatient to the patient.”

Take the last 75 years in the S&P 500: as you can see, most years have had their share of downside volatility (denoted by DD: maximum drawdown). However, most years ultimately end up positive. It’s also fair to say that, the longer you keep invested, the higher the chance you will participate in those positive years, and that those positive years will outnumber the negative ones.

S&P 500 Index: Max Intra-Year Drawdowns vs End of Year Total Returns (1950 – 2025). Source: Charlie Bilello, Creative Planning.

So, let’s keep in mind that pullbacks are normal, and historically in any given year we see one to three corrections in the 5% to 15% range. The below chart shows the number of 5%, 10%, 15% and 20% declines in the S&P 500 per calendar year since 1928. Rather than trying to avoid them, long-term investors can use these corrections as opportunities.

Number of 5%, 10%, 15%, and 20% declines in the S&P 500 per calendar year since 1928. Source: FactSet, Edward Jones.

It is true that this current correction is one of the fastest in the past 75 years, however, if you think about it, these corrections are a very common theme of the long-term process. The S&P 500 is currently down 10% from its most recent peak. It also had a similar drop in 2023, and July 2024. 

There have been corrections, and there will be corrections, and no one individually can control that. What we can control though is how we react to these volatile periods. Remember, your consultant is readily available to discuss with you, understand how you might be feeling, and help you review your strategy to make sure you are best positioned for your goals.

What to do at tax year end if there is market volatility? Take stock

There are few certainties associated with putting your capital at risk. If there is one thing to remember after reading this, it is that you need to play to your strengths. Stick to your long-term strategy, consider viewing this volatile period as a potential opportunity to buy at a cheaper valuation, and try to maximise your tax-free allowances whenever possible.

As ever, we encourage you to get in touch with your consultant to discuss any thoughts and ensure your portfolio is aligned with your long-term financial goals.