After Post

There are many conversation points stemming from the large market selloffs that occurred in the US and rest of the world after Donald Trump announced a sweeping set of tariffs. One theme is investor behaviour itself, and how understanding this can reduce potential for mistakes.

Unsurprisingly, considering the $6 trillion-plus loss in value of US stocks between 2 to 4 April and the volatility that has continued since, investors are on edge. This is another occasion to consider the insights of behavioural finance. The term “behavioural finance,” a topic that was relatively obscure within mainstream finance two decades ago, has become more of a talking point. The term applies to understanding, for example, how people mistake portfolio gains for pure skill rather than also accept the role of chance or treat losses more emotionally than they do with gains and follow crowd behaviour. These biases can lure investors into buying stocks when they are expensive because of the “herd” mentality, or a sort of “FOMO” effect – fear of missing out. And it can induce unwarranted despair, leading people to selling assets in what, with hindsight, was the bottom of the market. (A problem with all this is that humans act based on necessarily imperfect information; we are not omniscient, and no-one wants to be in the position of being right, with hindsight, but still broke.) A bank that has blazed a trail on behavioural finance is Barclays. Alexander Joshi, head of behavioural finance at Barclays Private Bank, said it is crucial for bankers and advisors to understand their clients’ mindset during periods of market volatility, while also being aware of their own behavioural biases. “Recent market volatility is understandably unsettling for many investors. Periods of uncertainty often heighten caution, leading some clients to consider shying away from risk. As such, understanding investor psychology becomes not just helpful, but essential,” Joshi said in comments emailed to this publication. “Cautious investors may be susceptible to confirmation bias, subconsciously seeking evidence to support their belief that investing is too risky at present. Inevitably, they will find it. At the same time, recency bias may cause investors to give disproportionate weight to recent market events when decision-making, shifting their focus away from longer-term objectives. In bear markets, such behavioural biases tend to get magnified; risks loom larger, and the worst-case scenarios dominate attention. Yet often, the perception of the probability of these outcomes is distorted,” he said. (“Recency bias” refers to a cognitive bias that favours recent events over historic ones.) “Helping clients step back, revisit their goals, and maintain perspective allows them to avoid reactive decisions and remain aligned with their long-term plans. Some clients respond well to data, while others need reassurance and empathetic dialogue. Recognising individual differences in risk tolerance and emotional response enables us to support clients more effectively,” Joshi continued. Advisors have their own biases, he noted. “Our mindset also has a part to play here, too. As trusted advisors, we influence how clients feel about markets, not just what they know. If we sound rushed, anxious, or reactive, it’s contagious. If we’re composed, balanced, and confident, it creates stability. That’s why we must remain mindful of how current turbulence affects not just our clients but our own psychology too,” Joshi said. Experience matters The behavioural angle comes up when Miranda Seath, director of market insights at the Investment Association, the UK-based organisation, commented on the aftermath of President Donald Trump’s tariffs announcement of 2 April. In particular, Seath referred to how experience of volatility – or the lack of such hard-earned experience – is an important factor to track. “If we look back at how investors and markets reacted to the most significant market events in recent history – the 2008 Global Financial Crisis and the 2020 Covid-19 pandemic – today’s investors are operating against a very different backdrop,” Seath said in a note. “The time people have spent in the market will also influence behaviours. IA and Opinium research from March 2025 found that over a third of investors (38 per cent) started within the last five years, meaning they likely have some experience of volatility from both the pandemic and the gilt market crisis of 2022,” Seath said. “These investors have already been through a significant market correction and whilst they saw the value of their investments fall, they also experienced the rebound. “Others may be capitalising on the situation and 'buying the dip' – upping their investments when market prices are low. We saw this in IA data in March 2020 during the pandemic – interestingly investors buying in favoured the UK, a fleeting example of home bias. However, nearly a quarter of investors (24 per cent) started investing in the last year, according to our latest research. “These investors will not necessarily have experience of market volatility. With many investors making decisions at the start of the tax year, good communication and support will be crucial for this group. When markets are turbulent, it is important to maintain a long-term perspective and carefully consider any investment decisions. Diversification across asset classes and geographies can also help manage risk and market downturns. While the uncertainty is set to continue in the near-term, staying invested may be the best strategy,” Seath said. Investment habits by time Notes on chart: In 2025, the IA again partnered with Opinium to conduct a survey about saving and investing habits in the run up to the 2024/2025 ISA season. The survey fieldwork took place between the 28 February 2025 and the 5 March 2025. We surveyed three groups: • 1000 UK investors • 1000 UK Cash ISA or Junior ISA holders • 2000 UK adults (18+) where the respondents were weighted to be nationally representative of the UK adult population. Source: IA.