Market volatility is a normal part of investing, but how you respond to it matters most.
When markets drop sharply, you may react emotionally and feel you need to take action or sell your investments quickly. This ‘panic selling’ is usually driven by fear and following the herd mentality rather than independent analysis. Letting short-term movements in the market derail your investment strategy means you could end up selling at a loss without opportunity for recovery.
Staying calm is not always easy, especially when you see your pension balance fall. Still, remaining patient during market dips can give your investments time to recover.
In fact, downturns can be seen as opportunities to buy at lower prices. If you’re investing for the long term, especially in a pension, it’s important to stay focused on your goals. Continuing to make contributions through a market downturn can be beneficial for your pension.
Please note that all figures and data presented in this blog are for educational purposes only and should not be considered financial advice. PensionBee is not liable for any personal investment decisions made based on this content.
Why staying invested matters, even in volatile markets
During uncertain times, continuing your regular pension contributions can work in your favour. Regular contributions help smooth out short-term volatility and improve long-term growth. Here are four reasons to make regular contributions to help you stay on track with your saving goals.
1. Pound cost averaging works in your favour
‘Pound cost averaging’ is an investment strategy where you contribute a fixed amount regularly over time, rather than making a single lump sum contribution. It’s commonly used in long-term investments like pension funds.
This approach helps smooth out the impact of market fluctuations. When prices are low, your fixed contributions buy more units in a fund. When prices are high, it buys fewer. Over time, this results in a lower average cost per unit.
Below is an illustration of the concept of pound cost averaging over 12 months.
For example, if you invest £1,000 each month, your purchases will vary based on the unit price, so:
- in the first month, with a unit price of £1, you buy 1,000 units;
- in the second month, when the unit price rises to £1.20, you buy 833 units; and
- in the third month, with a unit price of £1.30, you buy 769 units.
This continues over the months. By the time of your last contribution, with the total contribution of £12,000, you’ll have accumulated around 7,900 units, with an average cost per unit of around £1.52.
In contrast, making one lump sum payment of £12,000 when the unit price is higher, say in month nine at £2.20, you’d only buy around 5,454 units.
Therefore, pound cost averaging means that when the market is doing well, unit prices go up, making it more expensive to buy. When the market is doing poorly, unit prices go down, making it cheaper. By contributing regularly, you can average out the cost of buying more units over time.
2. Market downturns are a good investment opportunity
It can seem counterintuitive to continue contributing when you see markets in decline. Or when you see your balance go down immediately after making a contribution. However, a common mistake that many investors make is stopping contributions altogether. Continuing to make regular contributions can help smooth out your investment over time. By purchasing units at lower prices during market downturns, you can buy more units for less money. This ultimately benefits your long-term investment strategy.
Historically, markets have always recovered from volatility. Your consistent contributions during market downturns can be beneficial over the long term when the market eventually recovers. So if you stop making contributions, you may hinder the long-term growth of your pension pot as you miss out on buying opportunities. We published a blog that explains the cost of missing the best trading days in the markets.
3. Takes emotion out and keeps you invested
Market volatility can trigger emotional reactions, which could lead to rushed decisions without proper analysis. For example, panic selling or delaying contributions in an attempt to time the market.
One effective way to stay on track is by setting up regular contributions. Automating your contributions can remove the emotion, helping you remain patient and disciplined during market volatility. This consistent investment approach will help you stay on track towards your retirement goals.
4. Keeps you on track with long-term goals
Pound cost averaging and leveraging market dips as buying opportunities can help reduce volatility in your pension investments. It’s also important to remember that pension investing is a long-term journey. The key to navigating these periods of volatility is to stay focused on your goal and committed to your investment strategy.
The sooner you start contributing and the longer you can stay invested, the greater your potential for positive returns, regardless of short-term market fluctuations.
Market resilience over the long term for pension investors
The graph above illustrates the historical performance of the MSCI World Index from January 1999 to May 2025. The MSCI World Index is a widely followed global stock market index. It tracks the performance of approximately 1,500 large and mid-cap companies across 23 developed countries.
Overall, the graph shows an upward trend with short-term volatility at various points. Over the past 25 years, the market has experienced numerous significant events. This includes the Dotcom bubble in 2000, the global financial crisis in 2008, Brexit in 2016, and the COVID-19 shock in 2020. More recently, geopolitical events, including shifts in US policies and conflicts in the Middle East are creating uncertainty.
And yet, through it all, one thing remains clear: the market has shown remarkable resilience. Through numerous cycles, it’s bounced back from downturns, often emerging even stronger.
For long-term investors, especially those investing in a pension, this historical perspective is important. It’s a valuable reminder that short-term volatility is a natural and inevitable part of investing. But staying the course has consistently delivered strong results over time.
Have a question? Get in touch!
Do you want to know more about your pension plan with PensionBee? Learn more about the top 10 holdings in your pension fund on our blog, which is regularly updated. You can also look at our Plans page to learn how your money is invested in different assets and locations, or log in to your BeeHive to see your specific plan. You can always send comments and questions to our team via engagement@pensionbee.com.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
