Answering our investors' top market volatility questions

Hi there. I'm Vince Maimone, senior wealth advisor at Vanguard.

When the market experiences periods of volatility, the headlines often focus on how stocks are performing. But some investors are also worried about what's happening with their bonds.

If you're thinking about moving your money from bonds to cash, there are a few important things to keep in mind.

Cash is a great option for reaching short-term goals. For example, if you're planning a wedding or preparing to buy a house, cash might be the right choice.

But for long-term goals, overinvesting in cash comes with risk. If you move to cash during a downturn, and then try to time the market to get back in, you might miss out on potential gains.

Plus, cash has its own risk: purchasing power risk. If inflation goes up, the value of your cash can decrease, and you might lose more in the long run than you would have from market fluctuations.

So let's talk about the role that bonds play in your portfolio.

Bonds offer a steady income stream through regular interest payments, which can be especially comforting during uncertain times.

I find that younger investors with a longer timeline ahead see the benefit in having a small cache of bonds.

Early retirees or more conservative investors like to have a much larger allocation of bonds to help preserve their principal.

No matter what stage of life you're in, bonds also have another special benefit. They can help even out the market's ups and downs by diversifying your portfolio.

And diversification is key. Every asset class has a role to play.

Even when one asset class may be down, another in your portfolio may be up.

By diversifying, you're sacrificing some potential gains on the upside to mitigate losses on the downside.

Most people that I talk to find that the pain of a 10 percent loss feels a lot worse than the joy of a 10 percent gain.

So it's not always about maximizing growth. It's about mitigating the risk. And bonds can help you do just that.

Like I said, every asset class has a purpose. A portfolio full of cash or full of bonds shouldn't be on anyone's bingo card.

Instead, look to diversify so you can manage risk, help achieve financial goals, and provide yourself a little peace of mind.

Hi, I'm Vince Sobocinski, senior manager in Advice Methodology at Vanguard.

When the market is down, it's normal to feel unsure about your investments.

Right now, it's a great time to reflect on your goals, and financial plan, and resist the temptation to deviate.

If you're still wondering what actions you can take, there are 2 strategies that I often turn to during a down market: tax-loss harvesting and Roth conversions.

While we can't control market volatility, we can control our costs and taxes. That's where tax-loss harvesting comes in.

It allows you to reduce your tax burden by offsetting capital gains when you strategically sell investments that have lost value.

You can also reinvest money from the sale, rebalance your portfolio, and potentially improve overall performance.

When considering this strategy, it's important to recognize that there are some rules and limitations, including deadlines, the amount of losses you can claim each year, state-specific tax rules, and waiting periods.

A Roth conversion can be another valuable opportunity in a down market.

This strategy allows you to convert pre-tax dollars from a 401(k) or a traditional IRA into a Roth IRA. And when you convert pre-tax dollars to a Roth IRA, you pay taxes on the converted amount.

The key advantage is that the funds will grow tax-free in the future, and your withdrawals will be tax-free after age 59½.

In a down market, the value of your investments is lower, but this means you can convert a larger portion of your portfolio for the same tax cost.

For example, if you convert $5,000, you'll pay the same amount in taxes regardless of whether the market is up or down. However, in a down market, you can purchase more shares at a lower price, setting the stage for more tax-free growth over time.

While unpredictable markets can be challenging, they also present unique opportunities to optimize your financial strategy.

Always consult with a financial advisor to tailor these strategies to your specific circumstances, and ensure you make the most of these opportunities.

Hi, everyone. I'm Kate Lauer, senior manager in Personal Investor at Vanguard.

I know market ups and downs can be overwhelming, and that can sometimes lead investors to make snap decisions.

But the key to managing financial stress comes down to 2 actions: staying true to your long-term goals and identifying when a decision is emotional versus strategic.

So first, let's focus on what you can control by revisiting your goals and making sure you're still on track. To do this, I always ask myself 3 questions.

First, can I cover emergency expenses, like a car repair? Two, am I saving enough for my retirement? And 3, are there any future expenses that I need to plan for, like my son's education?

These are the basics of a strong financial foundation, and they're still important even when the market is shaky. Staying calm and looking at the big picture is key here.

Data shows that investors who panic and sell at the wrong time often miss out on the recovery, which can really hurt their long-term gains.

In fact, investors who panic and move their portfolio into cash, and keep it there for a year, have an 87% chance of underperforming versus those who remain in a balanced portfolio.

Once you have a handle on what you can control, the next step is to recognize emotional versus strategic, well-thought-out decisions.

When the market drops, it is totally natural to seek safety for your investments. After all, this is your hard-earned money that you've invested toward your financial goals.

But one mistake investors often make is panicking and moving their portfolio to cash.

This can put you in a tough spot, because now you've locked in your losses, and you won't benefit when the market recovers.

You might also feel safer if you just stop investing. But again, this can keep you from reaching your goals.

So remember, name the emotion, and then manage it.

Focusing on your big picture and what you can control can help manage stress during volatile markets.

Whatever your goals, Vanguard is here to help support you with resources and professional advice to weather any storm.

Hello, I'm Randy Lee, senior manager in Advice & Wealth Management at Vanguard.

During an economic downturn, the fear of losing your hard-earned savings or veering off track on your financial plan—it's real.

While economic developments and market volatility are beyond your control, you can control your financial decisions and your long-term strategy.

So what can you do? First, ask yourself 2 key questions:

1. Have your goals changed?

Think about both short-term savings goals like buying a house or building an emergency fund, and long-term investing goals like saving for education, retirement, or investing in retirement.

2. Has your risk tolerance changed?

For example, if you've lost your job, or the likelihood of losing your job is higher, that might impact your ability to take risks.

In some cases, making changes to our goals and risk tolerance can make sense. But staying invested and avoiding the pitfalls of market-timing are of paramount importance to long-term investing success.

During periods of volatility, 2 key investing principles can really help.

First: balance. Broadly diversifying your portfolio can help you avoid big losses and stay aligned with your goals.

Even if you're already retired, the importance of diversification remains just as important.

Retiring at age 65 doesn't mean you're done growing or maintaining your wealth. You could live many years beyond retirement.

Second: discipline. The market has seen tough times before, like during the pandemic and the 2008 financial crisis. And staying invested paid off.

It's not easy, but history and investor experience shows that staying in the market has been better than trying to time it.

If you manage your own investments, sticking to your plan can be reassuring. If you have an advisor, lean on them for ongoing coaching, support, and financial planning.

And remember, the investment landscape is constantly evolving. This can be daunting.

But it's important to remember that you have more control over your financial future than you might think. 

Hi, everyone. I'm Kate Lauer, senior manager in Personal Investor at Vanguard.

Whether you've been investing for months or decades, quick changes in the market and uncertainty about what happens can be really hard to stomach.

However, the key to long-term success often lies in taking a step back and embracing a mindful approach.

Mindfulness is about being present and fully engaged. It's like hitting the pause button on your busy thoughts.

In investing, it means taking a step back and assessing your emotions, and aligning your actions with your long-term goals.

Financial wellness is a key part of your overall health and happiness.

I'm sure you've been in a situation where you've been financially stressed. I know I have.

It can lead to anxiety, and sleepless nights, and even physical health issues.

Mindful investing helps manage those stressors by fostering a deeper sense of understanding of your financial decisions, giving you a sense of control and stability.

Emotional decisions can hurt your chances of reaching your long-term goals. When the stock market dips, people often sell to avoid their losses. But this can be costly in the long run.

Instead, take a step back, and give yourself time to make a more thoughtful decision. Rather than acting on impulse, do something you find calming. For me, that might be getting a workout in or just going outside.

These small acts can help you regain your composure, so you can revisit the decision with a clear, fresh mind.

Once you've taken emotion out of the equation, revisit your goals, and dig into data on the broader market trends to gain a wider perspective.

Looking at a week, versus a year, versus a decade can paint a very different picture.

If you still have questions, you can always speak to a financial advisor who can not only help you put together a well-balanced plan but will help you stick to it too.

In a world of quick wins and instant gratification, mindful investing offers a refreshing change.

It encourages you to slow down, reflect, and make decisions that benefit your long-term interests.

Remember, mindful investing is an ongoing process that requires patience and discipline. By focusing on your well-being and making thoughtful, goal-oriented decisions, you can navigate the market with more confidence and peace of mind.