Staying Centered in Volatile Markets: Focus on What You Can Control
In Douglas Adams’s popular Hitchhiker’s Guide to the Galaxy book series, one of the first things readers learn about the guide is its motto: “Don’t Panic.” That’s pretty good advice, almost any time, but it’s especially applicable for investors when the financial markets start to look like a rollercoaster—or, even worse, an elevator headed to the bottom floor.
What should the long-term investor’s attitude be during periods of volatility like the present? We believe it is important for investors to 1) remain calm; 2) maintain a historical perspective; and 3) stay on track with the strategies they have put in place in order to reach their goals.
1. Remain calm. Though it can be difficult to stay focused while seeing lots of “red” numbers displayed for the market indexes, it’s important to remember that these numbers happen for a reason and also that periodic market drops are a normal part of the cycle. Market pricing falls in response to uncertainty, and right now that uncertainty seems to be centered around the direction of the economy, especially with war in the Persian Gulf and oil prices apparently reaching new highs almost daily. But don’t forget: for every seller in the financial markets, there is a buyer who believes that purchasing the asset at the trade price represents an opportunity for future gain. Investors who can remember this basic fact, even during times of market volatility and price swings, can generally expect to benefit from expected market gains over the long term.
2. Maintain a Historical Perspective. This can actually contribute to greater calm for many investors. Remember that historically, market pullbacks are certainly not unusual. Declines of 15%, 20%, or even more are rather common in the equity markets. It is easy to forget these facts when markets are in a rising trend, as they were for much of 2025. Such “rising tides” can lull investors into a false belief that the markets can’t go down—but they always do, eventually! During periods of volatility, a historical perspective on market action can help to relieve the jitters that result from reading too many sensationalistic headlines. Investors should also keep in mind that a certain amount of market volatility is the reason that patient investors may reap larger rewards over the long time. Since the risk of volatility is factored into market pricing, those who are disciplined are often able to benefit from accepting a certain amount of risk—in the form of higher long-term growth. Remember, the equity markets have averaged a long-term return of about 10% over the last century, including periods of volatility brought on by world events like wars, recessions, depressions, inflation, deflation, acts of terrorism, and other causes.
3. Stick with Your Investment Strategies. Finally, we advise investors to stay the course. Any investment in the financial markets should be the result of a carefully considered plan that is designed with your unique goals, risk tolerance, and long-term objectives in mind. Such a plan will feature appropriate and broad-based diversification of holdings among various asset classes. It will take into account your investment life cycle and anticipated needs. It will afford opportunities that maximize value and minimize transaction costs and fees. And, finally, it will not be driven by emotional responses to short-term financial events. Indeed, those who take a long-term, patient view of the markets may reasonably expect to find attractively priced investments during periods of market downturns. Such “sale-priced” investments, when made as part of a cohesive, long-term strategy, can be expected to greatly enhance the profitability of a portfolio.
Focusing on What You Can Control: Tuning Out the “Noise”
Market volatility can put investors in a bad mood, for sure. But in a way, that may also provide some useful hints about how you can respond constructively. After all, when you’re in a bad mood, even if it’s caused by something that’s not your fault, you still have a choice: you can either pass your negative disposition on to everyone you meet, or you can “act better than you feel” and wait until the blues dissipate. The same principle holds for dealing with market volatility. You can’t control the US economy, the military situation in the Persian Gulf, or the monetary policy of the Fed. But you can control your emotional reactions to the market movements that inevitably accompany volatility fears. There are several constructive steps you can take to maximize your financial resources while maintaining your long-term financial plan.
- Retirees, review your “draw-down” strategy. All sources of funds are not created equal, and by strategizing properly, you can minimize the rate at which you deplete the assets you’ll need for future growth.
- Notice the opportunities. They’re out there, even in volatile markets. In fact, this may be the time to look past today’s risks, channel your “inner Warren Buffett,” and retain an appropriate amount of market exposure in pursuit of your long-term financial goals.
- Maintain appropriate diversification. This is perhaps the investor’s best tool for reducing the effects of market volatility on the portfolio. By maintaining the proper distribution of assets across a variety of asset categories, investors can generally mitigate some of the worst effects of market volatility.
- Stay disciplined. Panic selling in response to negative economic news or market downturns is not a recipe for long-term financial success.
- Review your budget. Cut back on spending where possible and consider building up a little extra cushion in your emergency fund. This will also help you avoid the temptation to react emotionally to temporary situations.
Perhaps the most constructive step you can take, if you’re concerned about the effects of market volatility on your portfolio, is to have a long talk with your fiduciary financial advisor. Getting the perspective of a professional with experience and access to the latest market and economic research can go a long way toward helping you avoid making decisions that could undermine your long-term financial success. At GEM Asset Management, we’re here to answer your questions and respond to your concerns; give us a call.