How to Survive Market Volatility

Financial Advice Financial Advisor Investment Advice Investment Advisor June 5, 2018 Author: Woody Derricks

Market volatility has returned this year and investors will need to adjust. But volatility doesn’t have to be negative. Volatility can mean opportunity. Worry and anxiety can be great motivators, and you can use periods of market volatility as an opportunity to fine-tune your financial future.

Market Volatility

Market volatility is usually characterized by wide price fluctuations and heavy trading.

Understanding what market volatility is about and planning to manage the ups and downs is an important part of your overall financial planning strategy.

Understanding Stock Cycles

The recent volatility in the stock market can be concerning. In some cases, checking balances can be profoundly discouraging. However, understanding the nature of stock market cycles can give you some perspective during periods of stock market volatility.

Why it Happens

Remember that market volatility happens for a variety of reasons. Quarterly reports from publicly-traded companies can cause a market reaction. Economic crises can have a negative effect on the market. Policy uncertainty in Washington or geopolitical unrest can cause markets to swing. Downturns are normal and usually short-lived.

How to Protect Yourself in a Volatile Stock Market

A volatile market can be scary. The road ahead might be unstable with increasing risk. The market drop can be particularly worrisome for retirees and near-retirees who have less time to make up for losses.

Here are some tips to help you survive a volatile stock market:

  • Don’t Panic

Make sure your investment mix matches what you want to achieve. Market volatility can cause people to panic and take money out, only to see the market go back up afterward. Take a pause and evaluate your short and long-term goals. Investing should be a long-term strategy that doesn’t change just because of short-term volatility. It is crucial to maintain a long-term focus.

  • Keep Your Portfolio on Track

Rebalance your portfolio on your normal schedule. If you have the ability to increase your monthly contributions, doing so during periods of high volatility could be a long-term benefit.

  • Diversify Your Income

Income from sources such as Social Security, a pension, and from rental properties can provide a base level of income that can help you weather the market’s ups and downs.

  • Cash is King

Having a portion of your portfolio dedicated to cash can help you weather market downturns. I typically recommend that clients have up to three years’ worth of cash in their accounts to help protect from market volatility during retirement. This way, you’ll have time before tapping into your equities as part of rebalancing your asset allocation.

  • Rethink your Withdrawal Strategy

You may want to reduce withdrawals from your savings during periods of market volatility to mitigate sequence-of-returns risk. Sequence risk is when the market goes through a down period early in a person’s retirement. The retiree then takes principal out of their portfolio rather than growth/income thus creating the potential for reducing their long-term returns and putting their long-term retirement income at risk.

  • Postpone Retirement If Needed

Postponing retirement is not the most popular option, but sometimes it’s a good one. You might benefit from a few additional years of work to build a cushion in your savings or to give your portfolio some time to recover.

Stick it Out

Sitting tight when the stability of Wall Street is up and down can be hard, but making emotional decisions in the short term can harm your long-term investment goals.

What Next

Understand that volatility is to be expected when investing. For long-term goals like retirement, focus on increasing your contribution rates, rebalance your accounts on your normal schedule, and marking sure that you have enough cash to cover your income needs.

If you’d like to learn more about your tolerance for risk, go to our website at and click the Free Portfolio Risk Analysis button on the right side of our home page.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation do not protect against market risk.

Stock investing involves risk including loss of principal.


The opinions voiced in this material are for informational purposes only and not intended to provide specific advice to any individual. This information is not intended to be a substitute for individualized tax, legal, or investment advice. We suggest that you discuss your particular situation with a qualified tax, legal, or financial advisor.