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Investors face ‘emotional rollercoaster’ in 2025

Investors face ‘emotional rollercoaster’ in 2025
Emma Lunn
Written By:
Posted:
23/01/2025
Updated:
23/01/2025

Behavioural finance experts have warned that knee-jerk reactions to market swings could cost investors in the year ahead.

Oxford Risk warned that the “perfect storm of volatility” could blow long-term financial plans off course if investors overreact or make poor decisions.

Behavioural finance experts at the organisation warned that 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 could mean a turbulent year for investors.

Its analysis shows knee-jerk emotional reactions to market swings could potentially cost investors an average of 3% each year in returns. It also predicted that losses could soar this year if investors make mistakes and invest in assets they don’t understand.

Analysts predicted high levels of volatility, with markets “expected to focus more on actual events and announced policy than speculation on social media”. Stock prices could be up and down due to the expected introduction of trade tariffs in the US, global inflation, and recession worries.

Oxford Risk warned that social media speculation will become more of an issue, due to the scrapping of fact-checking by Meta on its Facebook, Instagram, and Threads sites in the US. It predicted that the move could lead to “a rise in misinformation and disinformation about investment”.

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The new Trump Government is also expected to loosen regulation around cryptocurrencies and digital assets. Experts said this could attract more investors to trading Bitcoin and other cryptocurrencies, despite many not understanding the risks involved.

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.”