Contributors

Jeff Kreisler

Head of Behavioral Science for J.P. Morgan Private Bank

When the market is volatile, some investors get nervous, some want out and others reflexively rush to “buy the dip” and be “opportunistic.” Whatever you’re feeling about volatility may be, here’s how to make sure the decisions nudged by that feeling are as rational, well-informed, fundamentally sound and supportive of your goals as possible.

Normalize the pain

This hurts. Seeing our account balances, the numbers in our ledger and the lines on the charts swinging up and down is an uncomfortable feeling. Let’s acknowledge that. It’s normal to not like this. No one likes it. Not even those investors who claim to have “high-risk tolerance” will find times like this to be without worry. It’s one thing to say you don’t mind a bumpy road, it’s another to be bouncing around in your seat. 

It’s okay to not like what we’re going through.

Ask yourself why

What worries you? What are your specific concerns and fears about this volatility? Without passing judgement on yourself, take a moment to articulate why volatility is so uncomfortable for you. Are you worried about your discretionary spending, your retirement, your legacy, or your multi-generational wealth? Do you fear losing control? For how long, to what end, and with what impact? Be specific.

Naming our concern, saying it out loud, can be a big step toward addressing it and taking away some of the power it holds over our rational thinking.

Embrace perspective and advice

This is part of the process. Market swings are a normal part of the wealth-building process. A painful but normal one. More importantly, volatility is a part of the process for which we plan. You can see how these swings have occurred regularly over the last 40 years in the chart below. 

This chart shows the ranges of rolling annualized total returns of three different portfolios (stocks, bonds, and 60/40) over five different timeframes.

Despite such swings, markets and investments have gone up over that time, with significant wealth generation along the way. It’s never been an easy, smooth ride upward. It’s always been bumpy. We might think of volatility as the price of admission for a ride that has otherwise rewarded us very well.

Check your buckets

Mental accounting is the process by which we value money differently depending upon the source or use of that money. This may not be entirely rational, but it's quite useful, especially when embracing a goals-based wealth strategy. It allows us to make decisions in one mental account – philanthropy, entrepreneurship, risk-taking – without worrying that it will impact the account or “bucket” where we keep safe the resources that ensure security for our family for decades to come.

Unfortunately, during times of increased volatility, all of our mental accounts can blur together, and it can feel like a risk that only affects one account – our short-term balances, for instance – is affecting all of them. It’s not. There’s definitely more turbulence, but how much of your wealth strategy is dependent upon the next year?

Do you think the market will be higher in 10 years than it is today? If so, then let’s separate the wealth accounts that are 10 years out from our decisions based upon today.

Volatility risk is mostly about investments tied to the near term, so let’s limit our emotions, reactions, and decisions to investment goals in that near term, too.

Sail past present bias

The raw emotions of the present are much more tangible and powerful than the distant emotions of an uncertain future. We’re more likely to take action that hurts our future if it feels good right now. In times of volatility, we might do something to reduce the anxiety of the moment even if it harms our long-term outcomes. We might also rush to invest more if we think we’re being opportunistic and “buy the dip” without studying the fundamentals. These are the dangers of “present bias.”

Imagine we’re on a ship in rough water. If we stare at the hull as the waves crash into it, we get seasick. But if we lift our eyes to focus on the horizon, we’ll calm our stomach and be more likely to reach our destination. We should similarly shift our gaze during volatility. Don’t just think about the next six months or a year. Think about the next six years or decade… and beyond. See the chart below.

The chart highlights the S&P 500's intra-year declines (maximum drawdowns) and calendar year price returns from 1985 to March 3, 2025.

As our investment horizon expands, volatility shrinks. How will your decisions now impact those goals? That’s what really matters, more than the rough waters of the moment.

The cost of avoiding loss

We are more motivated to avoid loss than to pursue gain. We express such loss aversion when we say things like “I don’t want to risk my money” or “I’m worried about getting wiped out.” We do something with our money simply because we’re afraid of losing it.

When we pull our money from long-term investments, we may treat that fear of immediate loss, but we lose something else. We lose ground in the pursuit of our financial goals. We lose future lifestyle spending, lose wealth to pass on to the next generation, or lose resources to donate to causes dear to us.

There is a tradeoff in every decision.

If we’ve developed a plan to help reach particular long-term goals – a child’s wedding, a safari, home renovations, retirement – not using all of our resources to pursue those goals creates the potential for loss. These long-term losses aren’t just numbers, they’re flower arrangements, extra days in Africa, or a pool for the grandkids. They’re the details of our dreams.

You’re in control

When things are volatile and uncertain – in the markets, in politics, in our family and personal lives – it feels like we’ve lost control. The need for control is powerful. We often take action just to feel like we’re in control. We do something just so that we can Do Something!!  It’s natural and financial action can have noticeable, measurable outcomes, unlike those in politics or family. 

Unfortunately, doing something just to Do Something can have consequences for our long-term goals. It may feel like we’re taking control, but when we fail to maximize our resources or undermine our wealth strategy, we’re actually giving up control.

Using money wisely is the best way to control our financial future. That’s why we build financial plans and wealth strategies in the first place. And the wealth strategy you’ve built has been structured to anticipate this volatility. We’ve seen the charts, too. You’re in a better position to handle this moment than most because you’ve done the smart, competent, and powerful work of building an informed and thoughtful wealth strategy.

You are in control. It’s time to show it by making sound decisions with advice tied to your intentions and goals. 

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