How to handle market volatility and money stress

In times of economic uncertainty, the anxiety that can accompany market volatility can feel overwhelming. Whether it’s a sudden market crash, unexpected geopolitical events, or the pressures from inflation, the emotional toll of watching investments rise and fall can be hard to ignore. While it’s natural to feel a sense of helplessness when the value of your portfolio dips or you hear worrisome financial news, there are proactive steps that can help reduce the uncertainty and money stress that can often accompany these turbulent times and help you weather market fluctuations with greater confidence.

What is market volatility and what are the causes?

Market volatility refers to the extent of price fluctuations in financial markets, where stock prices can rise or fall sharply in short periods. For the average investor, this means sudden swings in the value of their investments. A volatile stock market can lead to large gains or losses, often driven by economic data, interest rates, global events, natural disasters, or investor emotions, making it harder to predict market trends with certainty.

A bear market is a period when stock prices are falling or are expected to fall, typically by 20% or more from recent highs, while a bull market is a period when stock prices are rising or expected to rise. When the market is going up, investors may feel optimistic and confident. On the flipside, when the market swings downward, feelings of negativity and financial worry can arise. Understanding market volatility can help individuals manage their expectations, avoid panic-driven decisions, and keep their financial goals on track.

Is market volatility and market risk the same thing?

Market volatility and market risk sound similar, but they’re actually distinct concepts. While volatility can be a signal of increased market risk (as assets with high volatility may also be more vulnerable to large losses), they are not the same. Volatility is often a temporary condition, while market risk is a broader, more persistent concern that can impact the overall direction of markets over time.

Confronting stock market panic and anxiety

Feeling worried about stock market conditions can be completely normal, especially when it feels like investments are being affected. The uncertainty can be unsettling, and it’s natural to experience money stress and anxiety over how these ups and downs will impact your financial future. However, reacting impulsively out of fear or panic can often lead to poor financial decisions. Instead, take a step back and refocus on long-term goals.

Meeting with a financial professional can also be helpful in easing concerns by learning more about the market cycle and discussing if your financial plan has factored these inevitable shifts into the overall strategy. Also keep in mind that bear markets last approximately 9.6 months on average and do not last nearly as long as bull markets. By maintaining a long-term perspective, it can be easier to ride out turbulence and stay in position to maximize potential growth opportunities when the market heads upward.

What to do when the stock market goes down

If the stock market declines, it can be natural to feel uneasy, but making hasty decisions may jeopardize long-term financial goals. Instead, focus on strategies that support the bigger picture and can help you navigate downturns with more certainty.

Avoid checking financial portfolio too often during market fluctuations

Frequent monitoring of a financial portfolio and its allocations during market fluctuations can lead to emotional decision-making and increase stress. Since a financial strategy typically spreads out risk and is designed around a person’s retirement timeline, risk tolerance, and overall goals, the impact of market volatility is already considered within the portfolio.

Remind yourself that market downturns are temporary

Markets inevitably experience fluctuations along the way, but history has shown that they tend to recover over time. Reacting impulsively to short-term drops could result in locking in losses or missing out on future growth once the market rebounds.

Evaluate and align risk tolerance

A person’s risk tolerance depends on several factors including age and life stage, time horizon, emotional comfort with volatility, past investment experience, and their current financial situation. By developing a strategy that aligns with an individual's true risk tolerance, it can be easier to stay committed to their financial plan even in times of market volatility.

Maintain long-term perspective during a market downturn

It's important to stay focused on long-term milestones rather than short-term market fluctuations. If a financial strategy is designed to span 10, 20, or more years, market declines are just temporary setbacks in the larger timeline. When you focus on the bigger picture, you can weather these inevitable ups and downs with greater confidence and avoid decisions that could undermine long-term financial progress.

Remember a diversified strategy can help reduce the impact of market volatility

The primary benefit of diversification is that it helps protect a portfolio from the negative effects of market downturns, as different asset types often respond differently to the same market conditions. A diversified strategy doesn’t guarantee against losses, but it can help smooth out the volatility of individual investments and reduce the overall risk in the portfolio. For instance, including a fixed index annuity (FIA) in an overall financial plan can offer growth potential when the market is up, but “lock in” interest credits, protecting them from market downturns.

Consult a financial professional about money stress and stock market anxiety

When market volatility or financial uncertainty causes stress, consulting with a financial professional can provide valuable perspective and guidance. They can help you understand strategy, reaffirm long-term goals, and ensure the financial portfolio is appropriately aligned with personal risk tolerance.

Why market volatility isn’t always a bad thing

During a down market, stock prices often decline, possibly making them more accessible for investors. These lower prices can present opportunities to buy quality stocks at a discount, potentially setting the stage for long-term growth. As the market recovers, these investments may increase in value, allowing investors to benefit from the rebound.

Riding out market changes successfully requires a well-rounded approach that helps mitigate the impact of market volatility and provides the right mix of growth potential and protection that matches your personal goals and preferences. Allocating money into different assets within a financial portfolio can help reduce risk by not relying too heavily on any single asset class. Supplementing a financial portfolio with a solution like an annuity can bring more balance to higher-risk assets like stocks, while also providing growth potential and guaranteed income.

By putting trust in your plan, it’s possible to feel more at ease and help regain a sense of control, even when the market feels unpredictable. Staying committed to a diversified strategy and remaining focused on long-term objectives can provide the confidence needed to navigate through market fluctuations and stay on track toward achieving your financial goals.

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