Ways to navigate market volatility and financial stress

During times of economic uncertainty, the anxiety caused by market volatility can be difficult to manage. Sudden market crashes, unforeseen geopolitical events, or rising inflation can create an emotional rollercoaster as investments rise and fall. It's natural to feel uneasy when your portfolio takes a hit or unsettling financial news dominates the headlines. However, there are proactive strategies that can help minimize money stress and regain control over your financial situation. By taking thoughtful, informed steps, you can navigate these unpredictable times with greater resilience and a clearer sense of direction.

What is market volatility and what can cause it?

Market volatility describes the degree of price fluctuations in the financial markets, where stock prices can experience rapid and significant changes over short periods. For investors, this can mean that the value of their investments swings dramatically, either up or down. Several factors can contribute to market volatility, including economic reports, changes in interest rates, global events, natural disasters, and investor emotions, making it difficult to predict market movements 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. During a bull market, confidence often tends to be high, while in a bear market, fear and financial concern may be the norm. By understanding the nature of market volatility, individuals can better manage their expectations, avoid impulsive decisions, and remain focused on their long-term financial goals.

Is market risk and market volatility the same thing?

Market volatility and market risk are similar, but are actually different 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.

Dealing with stock market worry and stress

It can be completely normal to feel concerned about stock market conditions, especially when it seems like personal finances are being affected. The uncertainty can be unsettling, and it’s natural to experience money stress and anxiety about how market fluctuations might impact your financial future. However, acting out of fear or panic can often result in poor decisions. Instead, take a moment to pause, breathe, and refocus on long-term goals can help maintain a clearer perspective.

Consulting with a financial professional can be a great way to alleviate concerns by gaining a better understanding of the market cycle and ensuring that your financial plan accounts for these natural shifts. Also keep in mind that bear markets typically last around 9.6 months on average, often much shorter than bull markets. By staying focused on long-term goals, it can be possible to navigate market fluctuations more easily and be in a strong position to take advantage of growth opportunities when the market rebounds.

What to do when the stock market drops

If the stock market goes down, it can be normal to feel worried, but acting impulsively can put long-term financial goals at risk. Instead, focusing on strategies that align with your overall plan can help you manage downturns with more confidence.

Remember market downturns are temporary and financial goals may span decades

Markets will always go through ups and downs, but history has proven that they typically recover over time. Making impulsive decisions during short-term declines could lead to locking in losses or missing the opportunity for growth when the market bounces back.

Avoid checking financial portfolio too often during market fluctuations

Constantly monitoring a financial portfolio and its allocations during market volatility may trigger emotional reactions and heighten stress. Since a financial strategy is designed to account for a person's risk tolerance, retirement timeline, and overall objectives, the impact of market volatility is already considered within the portfolio.

Keep in mind that a diversified strategy can help reduce the impact of market volatility

The key advantage of diversification is that it helps shield a portfolio from the negative impacts of market declines, as various asset classes often respond differently to the same market conditions. While a diversified strategy doesn't eliminate the risk of losses, it can help reduce the overall volatility of individual investments and lower the portfolio's total risk. For example, incorporating a fixed index annuity (FIA) into a financial plan can provide growth potential during market upswings, while also "locking in" interest credits to protect against downturns.

Maintain long-term perspective during a market downturn

It's important to stay focused on long-term goals rather than getting caught up in short-term market swings. If a financial plan is built for the next 10, 20, or more years, market declines are simply temporary blips in the overall journey. By maintaining a focus on the bigger picture, it can be possible to navigate these inevitable fluctuations with greater confidence and avoid making choices that might hinder long-term financial growth.

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.

Talk to a financial professional about money stress and stock market anxiety

When market volatility or financial uncertainty leads to stress, speaking with a financial professional can offer valuable insight and support. They can help review your financial strategy, reaffirm long-term goals, and make sure your risk tolerance and portfolio are aligned.

Is market volatility always a bad thing?

In a down market, stock prices typically decline, which can sometimes make them more affordable for investors. These lower prices may offer opportunities to purchase high-quality stocks at a lower cost, which could potentially pave the way for long-term growth. As the market rebounds, these investments may increase in value.

Successfully navigating market changes requires a well-rounded strategy that can help minimize the impact of volatility while balancing growth potential and protection. Diversifying across various asset classes within a portfolio can help spread risk and avoid overexposure to any one investment. Adding solutions like annuities to a financial plan can help balance higher-risk assets such as stocks, while also providing both growth potential and a steady, guaranteed income stream.

Trusting your financial plan can help restore a sense of control and improve peace of mind, even during unpredictable market conditions. By staying committed to a diversified strategy and keeping your focus on long-term goals, you can feel less stressed during market fluctuations and stay on the path toward financial security for the future.

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