How to Keep Calm Amid Stock Market Volatility

Tips to Help You Avoid Emotional Decisions

A seated upset woman looks at her volatile stock portfolio on her laptop


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Stock market volatility is a given, but sometimes stock prices swing more wildly than usual. During the COVID-19 pandemic, the Dow Jones Industrial Average and the Standard & Poors 500—two popular indexes that represent general market sentiments in the U.S.—have seen sharp declines and rebounds, and oil futures prices dropped below $0 for the first time ever.

“When things are scary, when the news is negative, when there's a lot of stuff that makes you anxious, you’re going to tend to want to go into a defensive mode” Dan Egan, managing director of behavioral finance and investing at Betterment, told The Balance via phone. 

Although the market may be unpredictable in the short term, investors must avoid making emotional decisions they’ll later regret. Here are ways you can remain calm when the stock market is in turmoil.

Key Takeaways

  • Maintain perspective—over the long term, the stock market has historically shown gains for investors.
  • Double-check your emotions, and wait 24 hours before making any big decisions.
  • Review your portfolio, but not every day.
  • Focus on what you can control with your investments.
  • Regulate your news consumption.
  • Speak with a financial advisor.

Maintain Perspective

According to Fidelity, a global financial services company, the stock market has experienced a downturn every six years, on average, since 1926. The losses from those periods of contraction have averaged a staggering 40%, which is rightfully an alarming figure.

Looking at these facts alone can be discouraging, but it doesn’t tell the whole story.

“Often, when I see investors anxious about the market, there’s a core lack of understanding of how it really impacts them,” Brandon Renfro, a certified financial planner and virtual financial advisor, told The Balance via email. “We tend to be nervous or scared of things we don’t understand.”

Despite periodic downturns, the market has always (over time) recovered and provided solid long-term gains to investors. So again, if your investments are earmarked for long-term goals, looking at the market’s long-term performance is a better way to gauge how the current situation impacts you.

Double-Check Your Emotions

It’s normal to experience fear during periods of market volatility.

“I think for a lot of people, it’s like yanking their hand away from a hot stove,” Renfro said. 

But making snap judgments based on fear or anxiety can do more harm than good. Think about your long-term investment plan and consider whether the decision you’re thinking about making fits within that plan or detracts from it. That’s especially important if you’re thinking about selling off your investments entirely. 

“Sure, you need to reevaluate and make sure you are still on track and make any necessary adjustments,” Renfro said. “But dumping your investments isn’t likely the right answer.”

If you can, take 24 hours to think over any big portfolio changes. 

Review Your Portfolio

Extreme market volatility may be a good reason to evaluate your portfolio’s makeup in the context of current volatility, taking into account your goals and risk tolerance. 

For example, bonds are generally less volatile than stocks, and some stocks may be riskier than others. If you don’t anticipate needing the money for several years, short-term volatility may not matter much. But if you need the investment funds for short-term goals in the next few years, you may want to make some changes to your portfolio to reduce your exposure to risk. 

If you’re not careful, keeping too close a watch on your investment account balance can pique your anxiety. Don’t lose sleep over daily fluctuations, and perhaps check in once a week or month, not every day. 

Focus on What You Can Control

If you’re feeling helpless about market volatility, it’s important to remember that there are many factors you can’t control—and factors you can control. 

Even if you understand logically that short-term uncertainty won’t impact your retirement or house purchase, you may still feel some anxiety about those long-term plans. The solution: Focus on the actions you can take, and factors you can control.

For example, you could employ the dollar-cost averaging investment strategy. Dollar-cost averaging involves investing a fixed amount of money in a certain fund or security, at consistent intervals (say, every Monday, or once a month) regardless of how it’s performing. When the price of the fund or security is down, you’ll purchase more shares. When it’s up, you’ll get fewer.

This approach helps you avoid “timing the market”—which isn’t a sound investment strategy—and reduces your average cost per share during downturns, which can benefit you when the market recovers. 

You can consider rebalancing your portfolio to ensure your portfolio maintains your allocations for your long-term investment plan.

Regulate Your News Consumption

There’s nothing wrong with keeping tabs on the stock market during periods of fluctuation. But it’s important to make some changes so that you can read the news on your terms and from sources you trust. 

“Oftentimes, a lot of the newswire today can be agitating or fear-increasing,” Egan said. “Make sure that you're [reading the news] in ways that are sort of time-constrained. You're deciding what new sources you want to go to and read about rather than having them come to you.”

According to Egan, you can do this by turning off notifications on your phone. Also, set a schedule for when you’ll engage with financial news—and not in bed at night, to avoid any anxiety that may interfere with sleep or sound decision-making. 

Speak With a Financial Advisor

If you’re already working with a financial advisor, reach out to discuss the situation and make the necessary adjustments to your portfolio based on your long-term investment plan. Together, define a strategy to make the most of market downturns. At the very least, an advisor can provide objective advice, which can help you avoid making emotional decisions with your money.

If you’re not already working with a financial advisor, now may be a good time to find one. Ask trusted family members and friends for recommendations and plan to interview multiple advisors to ask about how they earn money and how they can serve your needs. 

Always check each advisor’s credentials—websites like the Securities and Exchange Commission’s Investment Advisor Public Disclosure website can tell you about an advisor’s background, experience, and certifications, and also show whether the advisor has received disciplinary action. 

The Bottom Line

The idea of watching your investment account balance drop can be anxiety-inducing, even if you’re investing for the long haul. But you may end up regretting a fear-driven decision about your portfolio. Instead, take some time to consider the situation objectively, and think about consulting with a financial advisor to get a third-party perspective. You may end up making some adjustments to your portfolio, but as long as they’re thoughtful and fact-based, you’ll be less likely to second guess yourself down the road. 

Article Sources

  1. Fidelity. "6 Tips to Navigate Volatile Markets." Accessed May 19, 2020.