How To Avoid Emotional Investing When Markets Are Volatile

• Stay Disciplined: Market uncertainty can tempt you to stray from your strategy.
• Be Pragmatic: Accept that markets are unpredictable
• Think Long Term: Stay focused on your goals and draw on guidance to manage risk and stick to your strategy.

How Emotional Investment Decisions Can Put Your Financial Goals at Risk

When markets are volatile, going higher or lower quickly, do you feel compelled to look at your portfolio more or adjust your positions?

This is a common experience. You’re not alone in feeling the urge to react during market shifts. Investing is inherently a human endeavor, where emotions and instincts often influence decisions as much as strategies and data. Behavioral finance research shows that emotions play a significant role in our financial decision-making. This can push even the most experienced investor to act against their best interests in turbulent times.¹

In 2019, only 16% of U.S. investors reported that they would consider moving money to avoid losses during a volatile market.² However, recent findings reflect a notable shift: nearly 40% of investors now feel at a disadvantage during periods of market volatility,³ which highlights the growing impact of uncertainty on investor confidence.

But market unpredictability – driven by economic changes, global events, and political shifts — isn’t a bug of the market. It’s a feature. Volatility is an inevitable part of investing. While sudden shifts can feel unsettling, learning to channel these emotions productively is essential. By managing your reactions, you can make sound financial decisions that keep you on track to meet your goals.

The Risk of Trying to Time the Market

During periods of market volatility, you may feel tempted to try and buy or sell based on what you think will happen next. However, history shows that attempting to time the market often comes at a cost.

It’s nearly impossible to know precisely when the market will drop or bounce back, and reacting to short-term movements can lead to missed opportunities or potential losses. As illustrated in Figure 1, staying invested through market cycles allows your portfolio to recover and grow, avoiding the pitfalls of missing key rebound days. Attempting to time the market can come at a cost.

Staying invested over the long term allows your investments to recover from downturns, continue compounding, and benefit from future growth. Even though market values may fluctuate, a steady, long-term approach often yields better results than jumping in and out. Additionally, more frequent trading can lead to higher transaction fees and trigger tax consequences – factors that reduce your overall returns.

Working with a trusted financial advisor can help you focus on time in the market rather than trying to time the market, cultivating a more resilient and disciplined approach to investing.

Rational Investing in an Age of Uncertainty

Regardless of experience level, uncertain markets present challenges that go beyond short-term fluctuations, reminding us that risk management isn’t only about weathering volatility. Recognizing how quick reactions and natural biases influence decision-making can help prevent counterproductive actions.

Consider two examples that illustrate the challenges investors face during market downturns and how a balanced approach can help.

Worrisome Headlines and Opportunity Cost

For investors newer to the financial realm, market downturns may feel particularly jarring, especially if they haven’t encountered notable declines before. The instinct to sell to avoid further losses can be strong. However, impulsive reactions like exiting the market can negatively impact your long-term returns.

Working with an advisor helps you gain clarity on concepts like risk tolerance (your comfort level with risk) and opportunity cost (the potential benefits you might miss by reacting too quickly). Their guidance can help you develop a clear plan to manage uncertainty while staying aligned with your long-term strategy. Advisors can help you:

• Recognize risk aversion and loss aversion and how these biases can subtly influence decision making.

• Understand the balance between risk, reward, and the opportunities you might miss by exiting too early or buying at inflated prices.

• Create a long-term strategy that serves as your anchor during uncertainty and aligns your mindset with your financial priorities.

Managing Income Needs and Market Volatility

For investors approaching or in retirement, market movements often raise concerns about protecting accumulated wealth and ensuring steady income.

Many investors also focus on legacy planning during this stage, aiming to provide both roots and wings for the next generation. In times of volatility, it can be tempting to shift heavily into cash or low-risk assets to wait for markets to stabilize. However, moving out of growth assets entirely may limit your portfolio’s ability to keep pace with inflation, potentially reducing purchasing power over time.

Guidance from an advisor can help balance these concerns by crafting a personalized approach that adjusts risk exposure gradually while maintaining the potential for growth. Regularly reviewing your plan helps keep your investments aligned with income needs, long-term objectives, and legacy priorities. Advisors can help you:

• Revisit your financial plan helps ensure that diversification stays aligned with changing circumstances and goals. This includes supporting liquidity needs, risk tolerance, and time horizons while seeking to minimize potential losses during downturns.
• Use your plan as a foundation to manage risks like sequence of return — or the order that investment returns happen over time — and determine adjustments where necessary.
• Leverage insights into market trends and your unique goals to evaluate whether you may need to adjust your portfolio during periods of heightened volatility.

Reach Your Goals with Confidence

Stress and anxiety are natural responses to market volatility, but recognizing how these emotions influence your actions can help you stay on track. Effectively managing emotions is essential to stay focused and make sound financial decisions. Maintain discipline, adopt a pragmatic perspective, and prioritize what matters most to your financial aspirations to navigate market movements with greater confidence.

Partnering with an advisor provides tailored guidance and a broader strategic perspective which offers clarity to refine your decisions and align your financial actions with your goals. Advisors offer value across a range of market environments, bringing clarity and structure to the financial journey. Advised investors rate their advisor highly for helping them stay confident, informed, and focused on their priorities across varying conditions.

Additionally, advisors help bolster sentiment around financial security. Nearly 77% of investors working with an advisor feel reassured they are taking the right amount of risk – compared to the uncertainty and isolation often reported by those going it alone.⁴ Whether it’s preparing for life transitions, building a personalized plan, or navigating unpredictable markets, advisors provide an important sounding board to help you move forward with clarity and purpose.

By maintaining perspective and focusing on what you can control, you can confidently navigate uncertainty and progress toward your financial goals.