What to do—and not do—when markets are volatile

When stock markets are volatile, it's normal to feel uneasy, especially if you're watching your retirement account balance rise and fall amid the headlines. You may feel a sense that it's time to adjust your investments in response to the market moves-but that instinct to act reactively is often where problems begin.

Instead, the better move is to take a breath and consider why you are feeling uneasy, said Shane Delavan, a private wealth market manager at BOK Financial®. He is also a member of BOK Financial's Women & Wealth Council. He finds that investor reactions are shaped by personal circumstances. "We all have our own 'money stories,' and market volatility can trigger them, so taking time for that kind of self-reflection can be really helpful," he explains.

Without that self-reflection, normal fluctuations in the market may feel more significant than they actually are. Delavan said that the most common types of investors who are struggling with market volatility tend to fall into three groups:

1. People who are reacting to a specific political environment or to geopolitical events: This is true across the political spectrum, he noted, explaining, “If your political views aren’t being reflected in the environment, you’re going to be much more sensitive to what’s happening and react more strongly to market volatility.”
2. People with limited market experience: Investors who are less familiar with the ups and downs of the market tend to be more reactive to volatility, regardless of the size of their investments, he said. Inversely, investors who have lived through market cycles are often better equipped to see volatility as temporary, rather than permanent.
3. People who are going through a life transition: Whether it’s divorce, the death of a spouse or upcoming retirement, “you’re going to generally feel more vulnerable and that can lead to an even higher need for stability. A volatile financial market can be a challenging experience when in a position of emotional vulnerability,” he said. 

The high cost of reacting

Short-term stock market movement is driven by a number of factors-from short-term events, such as a geopolitical shock, to underlying economic factors, such as the strength of the job market. When the market drops in response to a geopolitical event, it often rebounds quickly-and sometimes to greater highs. For instance, as the chart below shows, the 2024 Israel-Iran airstrike resulted in a 5.5% equity market sell-off, but six months later, markets had rebounded 18.1%.

Some investors react to these initial sell-offs by trying to time the market—that is, aiming to sell at the right moment and then waiting for the “perfect” time to get back in. However, doing so can be costly, Delavan cautioned.

"You may avoid some loss when you sell financial assets in a market downturn," he said. "But the challenge is that most investors have a high likelihood  to miss much of the market's recovery because those strong days happen quickly."  And those strong days tend to arrive when uncertainty is still high-before many investors feel comfortable stepping back in.

Compounding the difficulty of timing the market, some of the market's strongest days occur during periods of volatility. Consequently, stepping out of the market, even briefly, increases the risk of missing these gains, which can have a lasting impact on overall returns. For instance, missing even just the five best days of S&P 500 returns, results in a compound annual growth rate of 7.4% over a 30-year period, compared to 9.1%, had the investor stayed fully invested, according to the chart below.

How to stay grounded during volatility

When markets feel unsettled, small shifts in behavior can make a big difference in how you respond to the volatility. Delavan offers the following tips:

• Pause before reacting: "Take a breath," he said. "Try to understand what's driving your emotional response." Creating space before acting can help you avoid decisions rooted in short-term stress or past experiences.
• Limit constant news exposure: Stepping back from the constant flow of headlines can help you maintain perspective. As Delavan said, “The news is designed to get attention and that can make people more emotionally reactive.”
• Check your portfolio less often: Less frequent monitoring reduces the likelihood of reacting to every movement. "If you know you might react emotionally, don't check daily. Check your portfolio quarterly—or at most monthly,” he advised.
• Focus on the real-life impact: Delavan suggests asking yourself a simple question: "Is this going to impact my standard of living?" "If the answer is no, refocus on the long term," he said.
• Build a financial cushion: Setting aside funds for near-term needs can help reduce the pressure to sell during downturns, he said.
• Talk with a trusted advisor: An objective perspective can help you stay aligned with your goals when emotions are running high.
• Have (and stick to) your financial plan: Instead of reacting to market movement, having a financial plan can provide direction, helping to ensure that decisions remain tied to long-term goals rather than short-term uncertainty. "A financial plan gives you a framework," Delavan said. "It helps you stay focused on what you're trying to accomplish."

When it may make sense to adjust your strategy

At the same time, staying invested doesn't mean doing nothing; it means making decisions for the right reasons, not reactive ones. This raises the question of whether it ever makes sense to react to market volatility.

The answer is: yes-sometimes. As Delavan said, "Changes in life circumstances are really the mostly likely reason that we would recommend adjustments," he said. These changes may include approaching retirement, a rise or drop in your income or expenses or evolving financial goals. Importantly, any adjustments to your investments should be measured, not drastic, so that your portfolio continues to support your long-term goals.

Conclusiones

Market volatility is uncomfortable, but it’s also part of the investing experience, which is why it’s important to maintain a long-term perspective.

And so, what matters most isn't avoiding volatility altogether; it's staying disciplined when it happens. In Delavan's words, "In most cases, people who stay invested and stay focused on their goals are the ones who come out ahead."