This matters because the sequence of returns can be just as important as the returns themselves. A period of poor performance early in an investment journey can feel alarming, even if long-term outcomes remain perfectly viable. Conversely, strong early gains can create false confidence and encourage excessive risk-taking just when caution would be sensible.
This is where investment horizon becomes critical. Short-term outcomes tell us very little about long-term success, yet humans are naturally wired to give recent experiences disproportionate weight. Behavioural finance refers to this as recency bias — the tendency to assume that what has just happened will continue to happen.
Another common influence is loss aversion. Losses tend to feel roughly twice as painful as equivalent gains feel pleasurable. This can make temporary declines feel intolerable, even when they fall well within the range of what was always expected. The result is often poor timing: selling after falls and re-entering after recoveries.
A simple example makes this clear: two investors can achieve the same long-term return, but the one who experiences losses early often feels far more anxious than the one whose setbacks come later — even though the end result is identical.
Understanding these biases helps reframe market volatility. Ups and downs are not a sign that something has gone wrong; they are a normal part of how markets function. The long-term return is built from these uneven components, not despite them.
This is one reason why trying to time markets is so difficult. Investors rarely know whether a setback is a temporary pause or the start of something more prolonged. Acting too quickly can lock in losses or miss recovery periods that arrive without warning.
Honesty about time horizon matters here. If an investment genuinely needs to deliver a result in the short term, it should not be exposed to long-term market risk. Equally, if the horizon is long, short-term volatility should be expected rather than feared.
A disciplined investment strategy accepts uneven progress as the cost of long-term growth. It focuses less on the shape of the journey and more on staying on it — aligned with objectives, timeframes and a realistic understanding of how markets behave.
Disclaimer: The articles above are for information only and do not constitute financial advice. Investment decisions should be based on individual circumstances and objectives.
