Market Volatility Checklist: What to Do When the FTSE 100 Falls

A market fall is not a verdict on your judgement. It is a test of your process.

The FTSE 100 drops three per cent in a week. The headlines get loud, the red numbers follow you onto your phone, and something in you wants to act — usually by selling. That impulse is understandable, and for most long-term investors it is also the single most expensive thing they can do. What follows is a checklist to work through, in order, the next time the index slides.

Start With Your Goals, Not the Headlines

How you should respond depends almost entirely on what the money is for. Before you look at a single price, answer three questions in writing:

• What is this money for? Retirement, a house deposit, school fees, or simply to grow?
• When do you need it? Next year, five years, twenty-five years?
• How much of it might you need at short notice? Repairs, a job gap, a boiler that gives up in February.

Then check your own portfolio rather than the index. The FTSE 100 is a market-weighted index of the largest companies listed in London, and many of those businesses earn a large share of their revenue overseas. A fall in the index may reflect global sentiment or currency moves as much as anything happening in the UK economy — and it may say very little about your particular mix of shares, bonds and cash.

Separate Near-Term Cash From Long-Term Money

This is the decision that prevents most panic selling, and it is best made long before a fall. Think in three buckets.

Money you need within two years

Keep it in cash or near-cash savings. Not because cash is exciting, but because you cannot afford to be a forced seller. Inflation will nibble at it; a 20 per cent fall at the wrong moment does considerably more damage.

Money you might need in three to five years

A middle bucket, holding a cautious mix of shorter-dated bonds and cash, or invested more defensively than your long-term money.

Money you will not touch for a decade or more

This is the bucket that can ride out a bad year or three. If your long-term money falls, you have time to wait. If your short-term money falls, you have a problem.

If the near-term bucket is fully funded, a market fall becomes background noise rather than a threat. That single piece of arrangement does more for your sleep than any market forecast.

Why Panic Selling Is So Expensive

A 20 per cent fall requires roughly a 25 per cent gain simply to get back to where you started. Sell at the bottom and you convert a paper loss into a permanent one, then have to make two correct decisions in a row: when to sell, and when to buy back in. Very few people manage both.

Recoveries also tend to arrive without warning. Markets often move in short, sharp bursts, which is why investors who step out "just until things settle" frequently miss the early part of the rebound and end up buying back higher than they sold. Add dealing costs, and the arithmetic gets worse.

Doing nothing is a decision. On a bad week, it is often the most disciplined one available.

None of this means you should never sell. It means selling should follow from a change in your circumstances or your plan — not from the colour of a screen.

Rebalance on Rules, Not on Feelings

Suppose your target is 60 per cent shares and 40 per cent bonds, and a sharp fall leaves you at roughly 54/46. Rebalancing means selling bonds and buying shares — at exactly the moment that feels most foolish. That is the point. Rebalancing is the mechanism that quietly buys low and sells high without you having to forecast anything.

Keep it boring and rule-based. Many investors check their allocation once or twice a year and act when it has drifted by around five percentage points from target, rather than reacting to every move. Choose a rule you can follow when you are calm, then follow it when you are not.

Use new money first

If you are still contributing, direct new payments towards whichever part of the portfolio has fallen below target. It restores your balance without triggering a sale, and it keeps the habit of investing intact.

A Checklist for the First Week

1. Re-read your goals. Nothing about a market fall changes when you need the money.
2. Confirm your emergency fund. Three to six months of essential spending in cash is a common benchmark; adjust it to your circumstances.
3. Check your timescale, not your share prices. If the money is not needed for ten years, a bad month is not actionable.
4. Compare your allocation with your target. Decide whether your rebalancing rule has actually been triggered.
5. Keep automatic contributions running. Pausing them during a fall means buying fewer units at lower prices.
6. Cut the noise. Turn off price alerts, delete the app from your home screen, and check your portfolio on a schedule rather than constantly.
7. Write down what you plan to do and when. A note to yourself is harder to argue with than a feeling.

What to avoid

• Selling everything to "wait for clarity". Clarity usually arrives after prices have recovered.
• Borrowing to buy the dip, or using leveraged products you do not fully understand.
• Overhauling your whole strategy because of one bad week.
• Concentrating a large share of your savings in a single company, however familiar the name.

If the falls are keeping you awake, affecting your relationships or pushing you towards decisions you would not make in a calmer month, that is a signal to speak to a regulated financial adviser rather than to trade your way out of it.

Write Your Plan Before the Next Fall

The best time to decide how you will behave is now, while the market is quiet. Keep it to a single page: your goals, your target allocation, your rebalancing rule, the size of your cash buffer, and the circumstances that would genuinely justify a change of course. Store it somewhere you will find it in a hurry.

Then review it twice a year — or after any big change in your life, such as a new job, a mortgage or a child — rather than after every bad week. Markets will fall again. The index will recover some days and not others, and nobody knows the sequence in advance. What you can control is your timescale, your costs, your diversification and your willingness to sit still. Those four things are worth more than any prediction.

This article is general information, not personal financial advice. If you are unsure how a market fall affects your own position, seek advice from a regulated professional.

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