Managing the cognitive dissonance of long-term investing

Key takeaways

• For many investors following the evolving headlines of the Middle East conflict, there’s a temptation to try to time the markets in response to good days and bad days.
• Jumping in and out of the market can erode long-term growth. That seems especially true right now, when markets have seen positive price action in anticipation of good news.
• Much like decisions in life, investment decisions are best judged over decades, not nights. And that means managing cognitive dissonance along the way.

Life entails a certain level of cognitive dissonance. It’s the discomfort you feel when you hold two conflicting beliefs at the same time — and the way your brain resolves that discomfort by rationalizing behavior.

I wrote this one day before my 50th birthday, a milestone that has me rationalizing behavior that conflicts with what I know to be true.

    Belief A: Alcohol is bad for my health.

    Belief B: I’m going to drink alcohol on my birthday.

The rationalization is simple. It’s for one night. What matters most to my long-term health are decisions made over decades, not over single nights.

Investing presents a similar tension, but with far higher stakes.

    Belief A: Trying to time the market is bad for my investing health.

    Belief B: Reducing exposure until risks subside will make me feel safer.

The rationalization many investors often reach is confidence in their own intuition. “I’ll know when to get back in. I’ll recognize the signal. I’ll avoid the worst of the decline and still participate fully in the recovery.”

The difference between these two examples is stark. In the first case, I may wake up tired and dehydrated. In the second, investors may permanently erode my long-term investment returns. The cost of resolving that discomfort is much higher.

Market movements in an uncertain world

Markets rarely reward those who wait for certainty. By the time risks feel resolved, prices have often already adjusted. For the most part, markets are forward-looking and probabilistic versus reactive and emotional.

Recent events provide a clear example. Despite elevated geopolitical risk, markets have behaved as though a worst-case outcome was unlikely. The S&P 500 Index bottomed on March 30 following a peak-to-trough decline of “only” 9.01%.¹ They appeared to be looking through the conflict in the Middle East, anticipating a relatively short duration and limited economic spillovers.

So, when Iran announced on Friday that the Strait of Hormuz would remain open during the ceasefire, it felt like confirmation rather than surprise.² Oil prices, which had been primarily falling since the end of March, plunged.³ The S&P 500 Index, which had been rallying for most of the month, closed at an all-time high.⁴ Small-cap and emerging market stocks extended gains that began in mid-March.⁵ Credit spreads tightened further, and are now lower than the days before the conflict began.⁶

Forward-looking versus reactive

Markets being forward-looking and probabilistic for the most part, rather than reactive and emotional, is an important distinction. Waiting on the sidelines for Friday’s announcement about the opening of the Strait of Hormuz may not have been rewarded. A lot of positive price action came before the good news and continued Friday, before cautious investors were likely able to respond to it. Weekend events resulted in the Strait being closed again, but the point still holds. While there may be near-term volatility as a result, the market may still trade as if a negotiated deal is forthcoming. 

Importantly, many fundamentals appeared to reinforce this market resilience. Corporate earnings were off to a solid start, particularly among large banks.⁷ Jobless claims remained low.⁸ Regional purchasing manager surveys have been moving higher, suggesting firmer manufacturing momentum.⁹ Growth in the United Kingdom has exceeded expectations.¹⁰ Growth in China has also come in better than the most pessimistic forecasts.¹¹

Many investors tend to stay invested because they accept cognitive dissonance as part of the process. They recognize that their time horizon is longer than the lifespan of any single conflict. They think in probabilities rather than certainties. Much like decisions in life, investment decisions are best judged over decades, not nights.

What to watch this week

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Originally Posted April 20, 2026

By Invesco US – Managing the cognitive dissonance of long-term investing

Footnotes

1. Source: Bloomberg, L.P., April 17, 2026, based on the return of the S&P 500 Index from its peak on Jan. 27, 2026, to its trough on March 30, 2026.
2. Source: BBC News, “Iran says Strait of Hormuz is ‘open’ as Trump says US blockade will continue until deal reached,” April 17, 2026.
3. Source: Bloomberg, L.P., April 17, 2026, based on the price per barrel of Brent crude oil, which peaked at $118 on March 31, 2026, and fell to $88 by April 17, 2026.
4. Source: Bloomberg, L.P., April 17, 2026. The S&P 500 Index advanced 7.13% between April 1 and April 16, 2026.
5. Source: Bloomberg, L.P., April 16, 2026, based on returns since March 15, 2026: Russell 2000 Index (+9.54%) and MSCI Emerging Markets Index (+8.04%). The Russell 2000® Index measures the performance of small-capitalization stocks and is a trademark/service mark of the Frank Russell Co.®. The MSCI Emerging Markets Index captures large- and mid-cap representation in emerging market (EM) countries.
6. Source: Bloomberg, L.P., April 16, 2026, based on the option‑adjusted spread of the Bloomberg US Corporate Bond Index, which narrowed from 0.84% on February 27, 2026, the night before the war began, to 0.78% on April 15, 2026. The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers. Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.
7. Source: The Guardian, “Big U.S. banks rake in near $50bn profit as Iran war shakes markets,” April 15, 2026.
8. Source: US Bureau of Labor Statistics. April 16, 2026. Initial unemployment claims measure the number of people filing jobless claims for the first time during the specified period.
9. Source: Bloomberg, L.P., March 31, 2026, based on the Philadelphia Federal Reserve Manufacturing Composite Index, a monthly, regional survey measuring manufacturing activity in the Third Federal Reserve District (Delaware, southern New Jersey, and eastern/central Pennsylvania), and the Kansas City Federal Reserve Manufacturing Composite Index, a monthly measure of factory activity in the Tenth District (covering Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri). 
10. Source: UK Office for National Statistics, March 31, 2026
11. Source: National Bureau of Statistics of China, March 31, 2026

Important information

NA5401926

Image: Maskot/ Getty

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

Brent crude oil comes from the North Sea and is a global benchmark for oil prices.

Cognitive dissonance is a psychological conflict resulting from incongruous beliefs and attitudes held simultaneously.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

Purchasing Managers’ Indexes (PMI) are based on monthly surveys of companies worldwide and gauge business conditions within the manufacturing and services sectors.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

The opinions referenced above are those of the author as of April 20, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.