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Markets and economy

Don't let volatility drive you off track

When markets are volatile the instinct to “do something” is normal—but long-term investors should know that doing nothing a valid choice.
7 minute read
June 22, 2022
Markets and economy
Market volatility
Vanguard news
Vanguard values

If market volatility has you feeling anxious, you’re not alone. I’ve been getting more than the usual number of emails and calls from clients concerned about market swings impacting their portfolios. Many are asking some form of the same question: Faced with uncertainty, should I change course? 

The instinct to “do something” when things feel shaky or uncertain is a natural human response—but when we’re talking about your portfolio, it’s important to pause and take a breath.

I’ll share with you what I try to convey to my clients in times like these. In spite of the fears you may be feeling, and the panicked headlines clamoring for your attention, market volatility is a normal and expected occurrence. We can’t wish it away—and despite what some others might say, at Vanguard we don’t believe we can outmaneuver it through accelerated trading. 

What we can do is understand what’s driving volatility and control how we respond to it. In some cases, we can even take advantage of the opportunities it may present.  

What is volatility and what causes it to occur?

Generally, market volatility refers to how much the stock market's overall value fluctuates up and down. While seeing volatility with both stocks and bonds doesn't happen often, it can occur in extremely challenging economic times. In my view this doesn’t mean we should panic—I don’t believe the challenges are long-term—but it may help to recognize what’s behind these trends.

We’ve experienced a worldwide pandemic, with government monetary intervention aimed at supporting markets and the economy. While these policies have been largely effective, they’ve also contributed to high inflation. Now the Federal Reserve is working to tamp down inflation through a different policy approach. When you add in the outbreak of war in Ukraine, I would argue that “atypical” markets aren’t surprising.

We might also step back and consider where the markets have been in recent years. In 2021 the S&P 500 was up 26.9%—far above the historical norm. That’s great news for those invested in the equity markets, but certainly not a sustainable growth rate.

Much of the recent strong performance can be credited to fiscal policies aimed at promoting economic recovery during a time of crisis. As we move into a post-pandemic economy, it’s only natural for things to slow down. And as investors, we’re bound to feel some bumps along the way. 

What does it mean for you and your portfolio?  

You may be familiar with the concept of “loss aversion.” It’s a behavioral model introduced by Amos Tversky and Daniel Kahneman in 1979 to explain how people respond to uncertainty—and it boils down to this: When faced with a gain or a loss of an equal amount, we tend to perceive the loss far more intensely. For clients living in retirement, this fear of loss may be magnified.

In investing terms, loss aversion can have major implications. I think of it as “fear of missing out.”  You may have a long-term plan that you developed and implemented with confidence. Then one day you hear a financial guru on TV saying that bonds are no longer a good value or investing in cryptocurrency is a must. You may start to doubt yourself, wondering if you’re on the right track.  

I’ve had clients call me to say: My portfolio is down $50,000. Should I worry? I’ll remind them that their portfolio is still up $300,000 from when we started. It’s not meant to dismiss their concerns, simply to offer perspective. As an advisor—and an investor myself—I understand that we’re constantly trying to avoid losses and make the best decisions possible.

When markets feel uncertain, it helps to remember the fundamentals of investing. I ask my clients to remember why they got started investing and what their long-term goals are. Then we work together to help achieve those goals.

Looking to history can also help guide your thinking and perhaps soothe your fears. Keep in mind that bear markets are cyclical, as demonstrated by the 9 bear markets since 1980.

Read chart description

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.

Note: Although the downturn that began in March 2020 doesn't meet our definition of a bear market because it lasted less than 2 months, we have included it in our analysis because of the magnitude of the decline.

Sources: MSCI World Index from January 1, 1980, through December 31, 1987, and MSCI AC World Index thereafter.

In today’s media landscape, we’re all subject to information overload, so I remind my clients to be selective about the financial information they consume and make sure it aligns with their outlook: long-term investing, staying the course, and low costs.

At Vanguard, we offer tools, education, content, resources, account types, services, and more to help you along your investing journey.

Doing nothing is a valid choice

Unless there’s been a significant change in your personal or financial circumstances, the best plan of action for long-term investors is to stay the course. That’s what I tell my clients—and it’s how I approach my own portfolio. I want my clients—and all investors—to understand that doing nothing is a legitimate choice.

This is core to the Vanguard investment philosophy, time-tested over more than 4 decades. Vanguard clients exemplify the benefits of living out our principles:

  • Between November 2018 through February 2019, portfolios that remained invested saw a 10% increase over portfolios that moved to cash.*
  • During the 2020 downturn, despite the increase in trading, less than 1% of households abandoned equities completely.**


Vanguard’s investment principles are rooted in setting clear goals, maintaining balance, minimizing cost, and staying disciplined with a long-term perspective.

And when you invest with Vanguard, you can trust we’re doing everything we can to keep your costs low, using the least expensive funds possible. When the market’s doing well, most investors don’t think about expenses. But when it’s not, expenses really matter. I try to stress the strength and value of Vanguard from that perspective. That’s why you’re here. 

Are there any benefits to market churn?

It’s also important to note there can be some silver linings to a market downturn.  Especially when it comes to rebalancing, because you may have an opportunity to buy something at a discount. Clients who were strategic and stayed the course back in 2008–2009 rebalanced their portfolios and were able to buy certain stock funds or bonds funds relatively inexpensively. Maybe you need to get out from concentrated positions. For example, if you bought some stock and its value continued to rise, you may have a huge position in your portfolio that represents a lot of risk. It may be a good time to rebalance and get back to your ideal asset allocation.

There’s also the opportunity to consider tax-loss harvesting. Let’s say you realized a $10,000 loss this year. The IRS allows you to carry that forward indefinitely. So if you have a big expense coming up—such as a wedding or a new car—this could be a chance to use that loss to offset some of your gains.

That’s why we shouldn’t see volatility as entirely negative. It can also present some strategic opportunities. Working with an advisor can help. 

Let your goals be your guide

I often say to clients, we’re going to run our own race here, slow and steady. We’re not going to worry about what others are doing. Here’s what we’re going to do, based on your situation.

I also want clients to understand that we’re in this together. Vanguard doesn’t just say we serve investors, we’re built to follow through: Our unique investor-owned structure means that our interests are aligned with yours.††

I like to remind people that staying the course is what I’m doing, too. I’ve been a Vanguard client for over 27 years, and I know personally why this works.

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*Source: Vanguard calculations, using data from FactSet, as of February 28, 2019.

**Source: Vanguard, How America Invests 2020.

†Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you carefully review the terms of the consent and consult a tax advisor before taking action.

††Vanguard is investor-owned, meaning the fund shareholders own the funds, which in turn own Vanguard.

All investing is subject to risk, including the possible loss of the money you invest.

Diversification does not ensure a profit or protect against a loss. Fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investments in bonds are subject to interest rate, credit, and inflation risk. Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

Advice Services is provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.