Paul Nixon, Head of Behavioural Finance at Momentum
Anxious investors were the biggest losers in 2025, paying the highest ‘behaviour tax’ as fear-driven decisions during market volatility left them sidelined when markets recovered, according to Momentum Investments’ latest behavioural finance report.
The 2025 “Sci-Fi” report shows that investors who reacted emotionally to short-term market turbulence eroded up to 4.69% of their investment value over the year – significantly more than the average behaviour tax of 1.28% recorded across all investor archetypes in living annuities.
Using unsupervised machine learning algorithms applied to both discretionary and non-discretionary investments, Momentum Investments identified distinct investor archetypes, each displaying behavioural patterns that materially influenced their investment outcomes.
The period under review, from September 2024 to September 2025, was largely characterised by steadily rising markets and relatively subdued volatility, with the FTSE/JSE All Share Index (ALSI) trending upwards for most of the year. However, this calm was disrupted in April 2025, when the South African Volatility Index (SAVI) spiked sharply, triggering a dip in the ALSI and a surge in investor switching activity.
May 2025 recorded the highest switching levels of the year, as investors reacted to the sudden bout of market turbulence. This period became the defining moment that separated investor outcomes, highlighting how behavioural responses to volatility can either preserve or destroy long-term wealth.
The anxious investor archetype emerged as the most costly in 2025. These investors responded to the April volatility by aggressively de-risking – moving capital into conservative, lower-risk funds in an attempt to protect against further losses.
While this strategy provided short-term emotional relief, it proved financially damaging. As markets stabilised and the ALSI resumed its upward trajectory, anxious investors remained underinvested in growth asset classes, effectively locking in losses and missing the recovery. Their 4.69% behaviour tax represents real wealth destruction, money that would have remained invested had they stayed the course.
The avoider archetype incurred the second-highest behaviour tax, slightly above the overall average. Although avoiders typically de-risk more moderately than anxious investors and start from a more conservative base, even their measured response to volatility proved costly in a year where markets rebounded quickly.
Market timers, meanwhile, recorded the highest switching activity, averaging 3.97 switches per investor during the year. While frequent switching usually results in value erosion, their behaviour tax for 2025 was relatively neutral. Gains captured during rising markets were largely offset by de-risking decisions made during periods of volatility.
In contrast, assertive investors recorded a negative behaviour tax of -3.90%, meaning their switching behaviour added value rather than eroding it. These investors increased risk exposure during market upswings and benefited from continued equity market growth throughout most of 2025. However, Momentum cautions that this outcome is highly dependent on market direction and would likely reverse during a sustained downturn.
“The latest Sc-Fi report reinforces a core behavioural finance principle: emotional reactions to short-term market movements can have long-lasting financial consequences,’ says Paul Nixon, head of behavioural finance at Momentum. “If an investor’s long-term goals haven’t changed, the investment plan designed to reach them shouldn’t change either.”
The report underscores that while market volatility is unavoidable, abandoning a long-term strategy during turbulent periods often results in missed opportunities when markets recover.
ENDS
Ed’s note: Momentum’s SciFi report has been posted on our Publications Podium here.
