- Knee-jerk reactions to market swings cost investors around 3% a year in returns and could soar in the year ahead
- Oxford Risk warns perfect storm of volatility could blow long-term financial plans off course if investors over-react
Investors face an emotional rollercoaster in the year ahead as stock market volatility surges driven by a combination of policy changes from the Trump administration and the removal of fact-checking on social media sites, behavioural finance experts, Oxford Risk warn.
Its analysis shows knee-jerk emotional reactions to market swings cost investors an average of 3% each year in returns and predicts losses could soar this year as a perfect storm of volatility drives investors to make mistakes and invest in assets they may not even understand.
Oxford Risk says behaviourally-driven financial advice software can help investors and advisers avoid emotional mistakes, but warns that without these solutions in place, investors will likely experience an emotional rollercoaster resulting in bad decision-making and poor financial outcomes.
Analysts* are predicting high levels of volatility with markets “expected to focus more on actual events and announced policy than speculation on social media” with the expected introduction of trade tariffs and other policy announcements from the Trump administration, global inflation, and recession worries and interest rate decisions by central banks the major concerns.
Social media speculation will become more of an issue, Oxford Risk believes, with the scrapping of fact-checking by Meta on its Facebook, Instagram, and Threads sites in the US in line with similar policies on X leading to a rise in misinformation and disinformation about investment.
The boosting of cryptocurrencies and digital assets by the new US administration, which is expected to loosen regulation, will help set people up for an emotional rollercoaster in the year ahead as more investors are attracted to trading Bitcoin and other cryptocurrencies despite many not understanding the risks, the firm adds.
Typical investing mistakes that retail investors make such as chasing current and popular themes and trading stocks too much are more likely as volatility rises across the year, Oxford Risk believes.
It says advisers and wealth managers can play a significant role in helping investors to avoid this emotional rollercoaster but warns advisers need better technology to deliver more personalised support for clients during heightened volatility.
James Pereira-Stubbs, Chief Client Officer at Oxford Risk said: “Volatility is part of investing and people need to be able to tune out the noise, focus on their long-term financial plans and not rush to buy or sell. But the reality is many are not able to do so when markets are more unstable.
“It is going to be increasingly difficult in the year ahead with a real risk to investors as markets swing wildly in reaction to major policy changes from the Trump administration, while issues such as inflation and interest rates remain uncertain.
“The end of fact-checking social media in the US will add to volatility with people tempted to invest in the latest fads and a greater focus on cryptocurrency and digital assets.
“Advisers can address these issues for clients but they need technology support so they can provide hyper-personalised engagement that helps people get invested, stay invested, and make better decisions throughout their journey. By addressing individual needs and behaviours, financial firms can turn missed opportunities into better outcomes for investors.”
Oxford Risk’s white paper, Behavioural Engagement Technology: Using technology to understand, map, and improve engagement in personal finance outlines how using AI and machine learning to engage investors can improve financial outcomes and grow assets under management for advisers by 10% or more.
Guides available on Oxford Risk’s website for financial advisers and wealth managers outline how using technology and behavioural science enables firms to tailor services more efficiently whilst communicating with clients more effectively.
The company, which develops software to help financial services firms support clients in navigating complexity, uncertainty, and behavioural biases, has created proprietary algorithms that rank products, communications, and interventions based on their suitability for each client at any given time.
