Why emotions, cash derail good investments

While we know that during turbulent times it is critical not to let emotions get in the way of investing, an investment expert and former policymaker says it is equally important to remain active and not lean in on cash.

Amid the volatility and frenetic news headlines, Karen Ward, the chief market strategist for EMEA at J.P. Morgan Asset Management, is urging clients to stay the course.

"Uncertainty generates emotions, and emotions are often the enemy of good investment choices," Ward told the recent J.P. Morgan Asset Management Media Summit in London.

Ward, who used to chair the council of economic advisers for the UK government, pointed to the acute tension between economics and politics that is rippling across the markets.

"This a common theme among Western countries whereby electorates are demanding their politicians to deliver. The economic reality of delivering policies is tricky," she said.

"That has generated us this uncertainty, and it's generating market volatility, because the markets are a really critical way of guiding the politicians and electorates towards a feasible outcome - something that can be delivered."

When investors allow their emotions to dictate, they often flock to cash. Ward sees this happening in most European regions.

"Households are saving more than they have and they're staying in cash because they're so worried about what all this news means for their money," she said, warning that this is not the ideal move - even in uncertain times.

During major global crises such as Covid-19, the Gulf War and September 11, J.P. Morgan research shows that a balanced portfolio generally outperforms cash.

For the past year, Ward has been promulgating the importance of active investing more than ever.

"This is because many of the benchmarks, are highly concentrated now, and therefore, I believe, vulnerable to what some of the key risks that are out there today," she said.

So, how do investors protect their portfolio in the event both stocks and bonds are falling?

"That's what 2022 reminded us. Neither stocks nor bonds like inflation and that's when we had positive correlation," she said.

In learning the lessons from 2022, Ward recalls the impact of cost shocks followed by a fiscal stimulus, noting that alternatives shone during that period and that the asset class had the "best performing assets" amid inflation.

Financial Standard was a guest at J.P. Morgan Asset Management's 2025 Media Summit.