Introduction: Safety Is a Feeling, Not a Condition
Markets rarely announce danger in advance.
Instead, risk accumulates most aggressively when markets feel calm, predictable, and safe. Volatility is low. Narratives are reassuring. Losses feel distant. Confidence builds quietly.
This is not accidental.
Periods that feel safe reduce vigilance. They relax discipline. They reward behaviours that appear prudent in the moment but prove costly when conditions change.
History shows that the most damaging investment mistakes are rarely made during crises. They are made before crises—during periods of perceived stability.
In 2026, many investors will again confuse calm with safety.
This article examines ten mistakes investors consistently make when markets feel safe, and why these errors matter far more than those made during obvious stress.
1. Expanding Risk Because Recent Outcomes Feel Predictable
When markets behave well for extended periods, uncertainty feels reduced.
This encourages:
- Larger position sizes
- Increased exposure to similar risks
- Relaxation of downside assumptions
Predictability, however, is retrospective. It describes what has happened—not what will happen.
The mistake lies in treating recent stability as evidence that risk has declined, rather than recognising it as a phase within a cycle.
When markets feel safe, risk often expands faster than awareness.
2. Confusing Low Volatility With Low Risk
Low volatility environments feel reassuring.
Prices move gradually. Drawdowns are shallow. Risk appears contained.
But low volatility often coincides with:
- Increased leverage
- Compressed risk premiums
- Greater sensitivity to shocks
Volatility measures movement, not vulnerability.
The mistake is assuming that because markets are calm, portfolios are resilient.
In reality, calm conditions often conceal fragility that only becomes visible under stress.
3. Allowing Discipline to Drift Quietly
Discipline rarely collapses suddenly.
It erodes gradually.
When markets feel safe, investors may:
- Bend risk limits “just this once”
- Delay rebalancing
- Tolerate exposures they would normally question
Each deviation feels small. Collectively, they matter.
The danger is not that discipline is abandoned, but that it is quietly redefined.
By the time discipline is needed most, it has already weakened.
4. Overestimating the Durability of Favourable Conditions
Favourable conditions tend to reinforce themselves—until they do not.
Stable growth, supportive policy, and benign volatility encourage the belief that:
- The environment is structurally improved
- Old risks no longer apply
- Past constraints are outdated
This belief is rarely stated explicitly, but it shapes decisions.
The mistake is assuming that because conditions have persisted, they will persist indefinitely.
Markets are cyclical. Confidence is not a substitute for durability.
5. Ignoring Downside Scenarios That Feel Improbable
In calm markets, downside scenarios feel abstract.
Stress tests appear overly pessimistic. Tail risks seem remote. Conversations shift toward opportunity rather than survival.
This leads to:
- Underweighting adverse outcomes
- Overconfidence in recovery narratives
- Reduced emphasis on capital protection
The mistake is not optimism—it is forgetting that improbability does not equal impossibility.
Downside scenarios matter precisely because they feel unlikely during calm periods.
6. Increasing Complexity Without Necessity
Safety encourages complexity.
When markets feel stable, investors may add:
- More strategies
- More instruments
- More layers of optimisation
Complexity feels manageable when nothing is breaking.
Under stress, complexity becomes a liability—slowing decisions, obscuring exposure, and increasing behavioural strain.
The mistake is assuming that complexity adds robustness. Often, it adds fragility.
7. Treating Liquidity as a Permanent Feature
Liquidity is abundant in calm markets.
Trades execute smoothly. Exits feel assured. Capital feels mobile.
This creates the illusion that liquidity is structural rather than conditional.
The mistake lies in assuming liquidity will be available when it is needed most, rather than recognising that liquidity is often highest when it is least required.
When markets feel safe, reliance on liquidity quietly increases.
8. Underestimating Behavioural Risk Because Stress Is Absent
Behaviour feels controlled when nothing is testing it.
In calm markets:
- Confidence rises
- Decisions feel rational
- Emotional responses seem muted
This leads investors to underestimate how they—or their capital providers—will react under stress.
Behavioural risk does not disappear in calm periods. It is merely untested.
The mistake is assuming future behaviour based on present comfort.
9. Shortening Memory of Past Cycles
Time dulls memory.
As crises fade, lessons soften. Caution feels outdated. Past losses feel irrelevant to current conditions.
This short memory leads to:
- Repetition of old mistakes
- Dismissal of historical warnings
- Overconfidence in novelty
The mistake is believing that because conditions are different, outcomes must be as well.
Markets change. Human behaviour does not.
10. Mistaking Absence of Stress for Evidence of Skill
Calm markets flatter decision-making.
Good outcomes are attributed to insight rather than environment. Processes appear effective because they have not been tested.
This reinforces:
- Overconfidence
- Increased risk-taking
- Reduced humility
The mistake is not taking credit—but taking too much of it.
When markets feel safe, skill is often overestimated and risk is underappreciated.
Why These Mistakes Matter More Than Crisis Errors
Mistakes made during crises are visible and often defensive.
Mistakes made during calm periods are:
- Subtle
- Compounding
- Structural
They shape portfolios long before stress arrives and determine how portfolios behave when it does.
Most damage is done before the market reminds investors that safety was never guaranteed.
Designing for Calm, Not Just Crisis
Serious investors do not design portfolios only for stress.
They design portfolios that remain disciplined when stress is absent.
This includes:
- Maintaining risk limits during favourable conditions
- Preserving margin for error
- Questioning success-driven confidence
- Stress-testing assumptions even when it feels unnecessary
Calm periods are when resilience must be built—not when it is tested.
The Enduring Idea
Markets feel safest just before risk is most underappreciated.
The greatest investment mistakes are rarely made in fear.
They are made in comfort.
Recognising this pattern is a form of risk management in itself.
Closing Perspective
In 2026, markets will once again experience periods that feel safe.
Some investors will use those periods to strengthen discipline. Others will use them to expand risk quietly.
The difference will not be visible immediately.
It will be revealed later—when conditions change and portfolios are forced to show what they were really built for.
Safety is not something markets provide.
It is something investors must design for—especially when it feels unnecessary.