Keeping your cool when markets tumble

How to handle stock market volatility

by Mike Joslin


We know stock market prices can’t keep rising forever.

We know this.

Yet when the market’s hot, the gains are so winsome. So satisfying. We love seeing our nest egg grow. After all, that’s why we invest in the first place. To make our money work for us.

When prices drop (or plunge!), we feel more than just a little unsettled. We are often gripped with anxiety. Maybe even panic.

Fact is, jumpy markets make investors jumpy.

Keep it in perspective

In the halcyon days of a bull market (like we’ve enjoyed the past few years), it’s difficult to remember that soaring markets will eventually dip. These dips are often sudden, without warning and at times, for no apparent reason. Short-term risk and volatility are inherent in the stock market – which is why many investors have a hard time hanging on.

Market pullbacks, corrections and even bear markets, are simply a normal part of the stock market cycle. Whether due to inflation, tension over tariffs, rising interest rates or an overheated stock market, market drops happen — and they always will. Still, it’s human nature to feel the pain of a loss more deeply than the thrill of a gain.

Breathe deep and think long-term

You’ve probably heard this before (for good reason). Investing should be a long-term strategy that should never be chucked because of short-term volatility. You’ve also probably heard that most investing strategies (like saving for retirement) should be considered a marathon and not a sprint.

It’s critical that you don’t let emotions and short-term volatility hijack your long-term decisions. We all know that emotions exert tremendous power on decision-making. And we also know that sometimes we are our own worst enemy.

Propelled by an overwhelming desire to protect assets, some investors bail on long-term plans, become stock-pickers and oft-times end up selling low and buying high. Because who can predict the stock market? Timing the market so you get out at the right time and back in at the right time works best with a crystal ball.

Ask yourself the right questions

Thinking through certain questions is the better way to make thoughtful, deliberate decisions about your investments during tough market conditions.

These are good questions to ask yourself.

1. What are my goals for my portfolio? This is super-important to know because remember, your goals are (or should be!) driving your strategy. Do you want your investments to fight inflation, provide income over your lifetime, pay for your kids’ education, etc?

2. How much cash do you anticipate you’ll need for the next two to three years?

3. To what level would your portfolio value have to fall before you would be compelled to radically change your strategy?

4. What would you consider doing now to dial-down risk and prevent you from reaching this threshold?

Balance risk and reward

Finding your sweet spot, that right balance between risk management and potential reward is a challenge every investor faces.

It’s always a good idea to regularly re-evaluate your portfolio and your level of risk exposure. As a rule of thumb, as you grow older you should have less money in stocks and more in bonds, money market funds and other, typically lower-risk investments.

What to do NOW? If you’re risk tolerant — hang tight

If you’re an investor with a time horizon of more than five years, a high level of risk tolerance and low liquidity needs, it is probably best to hang tight with your current long-term allocations — assuming they were prudent in the first place. This is because the alternative — attempting to time the market (getting out and then back in at the right time) — has historically been nearly impossible to achieve.

What to do NOW? If you’re less risk tolerant — get defensive

If you’re nearing or already in retirement (with a shorter time horizon), have lower risk tolerance and large identified liquidity needs, now is the time to get more defensive. Specifically, you can –

1. Focus on established, quality investments

Whether an individual stock position, a mutual fund or an ETF, stick with large, liquid positions, and for actively-managed funds, stick with experienced managers (We call them the “blue-hairs and the no-hairs.”). For individual stock positions, as during the Dot-Com era, generally avoid companies with histories of losses.

2. Raise cash positions

Higher-paying, position-traded money market funds are an especially compelling, short-term alternative to additional bond exposure. They also enhance flexibility for future moves. The old Wall Street adage that “cash is trash” couldn’t be more outdated than it is right now.

3. For bonds, shorten overall duration

With interest rates likely to continue increasing, it’s best to increase defensiveness and reduce the average duration (roughly akin to maturity) in your bond portfolio.

4. Evaluate your foreign exposure

While a drag on performance this year (after providing a boost to portfolios in 2017), foreign stocks continue to be attractive on a relative valuation basis. They do, however, have higher volatility — especially emerging markets. The China trade tariff dispute has only increased volatility (and losses) in these areas, with the latest Brexit turmoil just adding fuel to the fire.

For investors keen on reducing the bumpiness of their portfolio, it may be prudent to trim foreign exposure, even though it appears to be cheaper than the domestic stock markets. Those who can afford to hang on should eventually be rewarded, although the current ride could continue to be rough.


Nobody likes market volatility. But having a historical perspective, asking the right questions and sticking to a good long-term plan, will help you keep your cool when the markets dip.


Advisory services are offered by Joslin Capital Advisors, LLC, an SEC Registered Investment Advisor.

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