Market volatility is inevitable, but that doesn’t mean it isn’t concerning at times. Let’s explore some important tips and insights that may help you navigate market volatility in a smart and strategic way.

Understanding Volatility in Financial Markets

During the 17-month bear market that occurred from October 2007 to March 2009, the Dow Jones Industrial Average and the S&P 500 stock price indices dropped by nearly 57%.1 Yet, by the end of 2009, the equities market increased by 26%.2 More recently, during the initial month of COVID (from mid-February to late-March 2020), we saw the Dow Jones Industrial Average lose 37% of its total value, then rebound back up 43.7% by the end of the year.3

A comprehensive plan can help paint the bigger picture, bringing the long-term back into focus, and outlining the many factors that go into reaching your goals—not just your investment returns.

The bond market has also experienced noteworthy volatility. From January 2021, the Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, dropped 11%, a historical record for global bonds.4

Despite the inevitable anxiety that accompanies it, volatility may be beneficial. Corrections are a normal and essential part of the cyclical nature of the market, serving as a ‘pressure release valve’ when equity markets soar too high too fast. So, what should you consider as you navigate market volatility?

1. Maintain Your Long-Term Focus

Over the years, those who commit to weathering the storm—remaining disciplined and focused on their long-term investment plan when markets turn volatile— eventually have been well rewarded for their patience.5

History has repeatedly shown it’s not your timing of the market, but rather your time in the market that’s the primary driver of investment growth.5 While some may seek the calmer waters of cash, volatility-induced stock declines (particularly in the face of otherwise strong earnings data) offer an opportunity for long-term investors to reduce their average share cost through dollar-cost averaging.

Dollar-cost averaging is when you invest the same amount of money in a particular security recurring over a certain period of time, regardless of price. This means that if the price of the security declines, your same monthly investment is able to buy a greater number of shares. While this kind of state may prompt investors to exit the market and sit on sidelines for a bit, it’s worthwhile to reconsider that strategy.

A recent study by investor research firm Dalbar examined the average return achieved by investors over the past 20-year period, and found that while most do try to time the market, they have significantly underperformed the market as a result. Amid strong index returns, the average investor over that period has underperformed a simple, indexed 60/40 portfolio by 3.5% annually. On a $100,000 investment made at the start of 2001, that means you would have missed out on more than $170,000 of gains by the end of 2020.6

2. Keep Cash on Hand and Pay Off High-Interest Debt

While you can’t control the markets, you can control how well you’re prepared to navigate the turbulent waters. Make sure you have an emergency fund set aside to cover at least 6–12 months’ worth of living expenses. This may help protect you from having to liquidate investments at depressed values to generate needed income, and, in turn, offer the ability to leverage a downturn’s subsequently lower prices.

If possible, pay down as much of your higher-interest (e.g., credit cards, auto loan) debt. But not at the expense of tapping into your emergency fund. The goal is to insulate yourself, as much as possible from other financial stressors when markets turn volatile, so you are less likely to make impulsive reactions that could lead to poor financial decisions.

3. Don’t Put All Your Eggs in One Basket

A diversified portfolio is a key factor in navigating volatility. Allocating your assets across a variety of types of investments may be helpful in reducing risk.

It starts with asset allocation, the act of dividing your investments among different assets, such as stocks, bonds, and cash. There isn’t a set standard for how and where to allocate your assets. Instead, it’s unique to each investor, taking into account key factors of your individual financial picture, such as the timeframe you have to achieve your goals, (e.g., retirement) and your preferred risk tolerance.

From there, it’s important to further diversify within each asset class. For example, ensuring that if you are investing in the bond market, your bond portfolio is not concentrated in one area. This allows you to be better protected during volatile times, minimizing risk if all of your holdings are not in a specific security.

In addition, if you are considering converting some of your traditional IRA assets to a Roth IRA, a market downturn (when the value of those assets has been reduced) may be an opportune time for a Roth IRA conversion—since the taxes you’ll owe may also be lower. Of course, Roth conversions aren’t for everyone, so make sure to consult with your tax advisor before taking any action.

4. Rebalance Thoughtfully

Over time, during a period of extended market gains, a portfolio of 60% stocks and 40% bonds, for example, might see its equity allocation steadily climb to 75% while its bond holdings fall to 25%, due to the stronger performance of stocks relative to bonds. This may cause you to take on more risk than you either intended or need based on your long-term goals.

This is why it’s important to periodically rebalance your portfolio. Rather than regularly buying and selling stocks in a way that triggers capital gains, there are several rebalancing strategies that can help to minimize any potential tax consequences:

  • Consider setting a minimum threshold for rebalancing. This may help your portfolio to absorb some shortterm market volatility without triggering purchase or sale transactions.
  • Don’t look at individual portfolios (taxable and retirement) in a vacuum. Even if target allocations in your taxable portfolio drift beyond acceptable risk limits, they may be offset by a reallocation of assets within your retirement accounts without any tax impact.
  • If you’re age 72 or older and taking required minimum distributions (RMDs) from your retirement account(s), you may be able to rebalance by drawing down stocks in which you are over weighted.
  • Those who wish to contribute to a charity may want to consider gifting highly-appreciated stocks. It’s a simple but effective way to restore target allocations without requiring any stock sales.

Stay Focused on Your Financial Plan

Warren Buffett once said: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

Remember that volatility will come and go. But when you’re armed with a well-constructed, long-term portfolio, anchored in a comprehensive financial plan, you can feel more confident in staying on track toward achieving your long-term goals. We’re always here for you to help provide advice and guidance as you work toward your goals, particularly during volatile times. 



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Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

This is to be used for informative purposes only. In no event should this be construed as a solicitation or offer to purchase or sell a security. The information presented herein is taken from sources believed to be reliable, but is not guaranteed by Janney as to accuracy or completeness. The value of and income from investments may vary because of changes in interest rates, foreign exchange rates, securities prices, market indexes, as well as operational or financial conditions of issuers or other factors. Past performance is not indicative of future results.






6. Quantitative Analysis of Investor Behavior, Dalbar, 2021

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