How to deal with market volatility

By Jean Chatzky - August 28, 2020

knowing that volatility is a normal part of markets, doesn’t make it any less gut-wrenching to watch the value of your nest egg fluctuate wildly. While markets go up and down in the short-term, the long-term trajectory of the stock market has historically been upward. If you’re a long-term investor, you’ve got time on your side.


Markets have always gone up and down, so why does it feel more volatile lately? It may be because 24-hour news coverage means you hear about every single up and down, and digital access to your accounts means you can check the value of your portfolio more easily—and more frequently—than in the past.

“Volatility is normal,” says Vickie Hampton, a personal financial planning professor at Texas Tech University. “It’s not news. But when you have a 24-hour financial news cycle, they have to think of something to say for 24 hours.” Add in the uncertainty around the global trade relations, interest rates, and potential employment weakness, and it’s clear that these ups and downs aren’t likely to vanish anytime soon. 

But knowing that volatility is a normal part of markets, doesn’t make it any less gut-wrenching to watch the value of your nest egg fluctuate wildly.  Here’s how to deal:

Don’t make any rash decisions.

Watching your portfolio take a nosedive can be scary enough to prompt thoughts of exiting the market entirely. Don’t do it. (If the news of a market swoon is making it hard for you to stick it out, tune out the news. Turn off the financial news stations and disable market alerts from your phone.) While markets go up and down in the short-term, the long-term trajectory of the stock market has historically been upward. If you’re a long-term investor, you’ve got time on your side. Selling stocks or funds after they’ve fallen in value will simply lock in your losses before they have a chance to recover. Plus, doing so will leave you trying to figure out the best time to buy back into the market, a nearly impossible task.

“Emotions can very often cause us to do harmful things,” says Michael Finke, a professor of wealth management at the American College of Financial Services. “[We] end up underperforming on our risky investments if we’re constantly pulling money out at the wrong time after prices have fallen or putting money back in only after prices have risen.”  Take 2008, for example.  The S&P 500 fell 38% that year, for example, but it bounced back 23% the following year and another 13% the year after that.1 Investors who sold in 2008 may have missed out on those gains, making it harder for their portfolios to recover.

Not only should you not pull money out of a choppy market, you should also continue putting more money into it. If you’re regularly contributing to your 401(k) or another investment account, keep it up. If you’re not, consider setting up automatic contributions. Dollar-cost averaging, is a great way to make sure that you don’t miss market lows when stocks are available at their lowest price. Conversely, when stocks cost the most, you’ll still be buying, but you’ll purchase fewer shares.

Use this as an opportunity to review your long-term plan.

While you want to avoid knee-jerk reactions, there are a few smart financial moves to consider now. If the recent volatility has thrown your asset allocation out of whack, think about  rebalancing. Having an appropriately diversified portfolio can help protect you against the ups and downs that follow, by making sure you’re taking the appropriate amount of risk for someone with your age and risk tolerance – rather than too much or too little just because market moves have put you in that position.

If you have a financial professional, check in before you make any changes. They’ll be able to give you a reality check about what (if any) impact the recent market moves could have on your long-term portfolio as well as advice and guidance around whether you need to make changes.

“Sometimes you just need someone to hold your hand and tell you that you’re doing the right thing,” says Robert Johnson, a finance professor at the Heider College of Business at Creighton University. “The biggest benefit of a good financial planner is not the decisions on which assets to invest in, it’s taking calls when the market is going crazy and reminding you that you have a plan.”

If you’ve met with your planner, and you’re still having trouble stomaching the market ups and downs, you may need to dial back your risk and adjust your plans for lower returns.  But do it gradually rather than cold turkey. While you need to keep some money in stocks in order to get the gains necessary to make your nest egg last, you might scale back a bit to reduce your stress levels.

Consider ways to reduce your risk.

To mitigate the risk of volatility for near-term financial needs, such as an impending retirement, increase your cash emergency fund. Having access to a few years’ expenses in cash reserves means that you can give your portfolio time to recover from any losses without making withdrawals.

If you’re worried that the volatility will impact your long-term financial security, leaving you at risk of outliving your savings, purchasing an annuity* to at least cover your fixed expenses is a strategy worth considering.  Having a source of guaranteed income to supplement Social Security that will last the rest of your life can temper fears that come with the market’s roller coaster ride.  “If you’re able to annuitize part of your nest egg, then you have a floor which your retirement income can’t fall below,” Johnson says. “That gives a lot of people peace of mind.”

With Beth Braverman





1 “S&P 500 Historical Annual Returns,” Macrotrends, February 2020

*What is an annuity?

Annuities are long-term, tax-deferred vehicles designed for retirement. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59½ unless an exception to the tax is met.

Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term investments designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 59½. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.

Guarantees are backed by the claims paying ability of the issuing insurance company. 

Investing involves risk including possible loss of principal. 

The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.


About the author
Jean Chatzky, Financial Editor, NBC's TODAY Show
Jean Chatzky, the financial editor for NBC’s TODAY show, is an award-winning personal finance journalist, AARP’s personal finance ambassador, best-selling author, and host of the podcast HerMoney with Jean Chatzky on iTunes. 


Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, annuities are issued by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Variable products are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact the Company for more information.

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