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What Should You Do When the Markets Get Volatile?

Market swings can be unnerving, but they shouldn’t distract you from staying focused on your financial goals. We spoke with Niladri Mukherjee, head of CIO Portfolio Strategy, Bank of America Global Wealth and Investment Management, for his insights.

IT'S HARD NOT TO PANIC whenever the stock market takes a nosedive. In fact, at times of extreme volatility, many investors overreact and bail out of the market altogether, or they engage in what’s called the “ostrich effect” and essentially do nothing. While both reactions are understandable, neither one is going to help you make progress toward your long-term goals, notes Niladri Mukherjee, head of CIO Portfolio Strategy for Bank of America Global Wealth and Investment Management. It’s also worth keeping in mind that volatility can open up new growth opportunities as some investments become more reasonably priced, he says. Below, Mukherjee offers useful guidance on how to navigate the market’s often choppy waters.

Q. Whenever there's extreme market volatility, it tends to get a great deal of media attention. What's your take on the way that news reporting affects investors' reactions?

A. At times like these, you hear a lot of people saying, “Put down your paper and turn off the TV.” I think that kind of advice misses the point. What's happening in the markets is legitimate news, and it needs to be reported. But the media isn't providing investment advice. It’s not accountable for your progress toward your goals. You and your financial advisor are. It’s also important to separate the hype and the noise you might hear in the news from the reality of what’s happening in the markets. And you should look at these moments as opportunities to start a discussion with your advisor about what makes sense for you to do now.

Niladri Mukherjee Headshot“One thing you can do is make sure that your portfolio is sufficiently diversified. A broad mix of investments can help you weather volatility.”— Niladri Mukherjee, head of CIO Portfolio Strategy, Bank of America Global Wealth and Investment Management

Q. What do you tell people who ask you how they should respond when the markets drop?

A. I like to point out that while markets are known for their unpredictability over short periods of time, if you look back over the longer term, the trend for the equity market is unquestionably up. In fact, if you had stayed invested in stocks back in March 2009—when the S&P 500 hit its lowest point in the wake of the financial crisis—your investments could potentially have almost quadrupled since then. 1 That’s all the more reason to take a measured response to volatility and think through any steps before you take them.

Volatility tends to make investors feel uncertain and fearful about what could happen next, and that often prompts them to make rash decisions that aren’t ultimately in their best interests. The best thing to do when the markets get turbulent is to take a step back and ask yourself what your purpose for investing was in the first place. How can you thoughtfully adjust your investment strategy to stay on track toward achieving your goals?

You also should keep in mind that market downturns—while challenging when they’re happening—almost always open up new opportunities. These could be in areas of the market that were perhaps overlooked or overvalued before the downturn began. Your financial advisor can help you analyze your risks and identify new opportunities. If there’s any silver lining to volatility, it’s that it can allow you to make adjustments to your portfolio that could be beneficial over a longer period of time. But whatever changes you make, be sure you're basing them on your needs, not on the market's ups and downs.

Q. Are there any actions investors can take now to help them gain a greater sense of control over their investments, regardless of what the markets are doing?

A. One thing you can do is make sure that your portfolio is sufficiently diversified. Having a broad mix of investments—stocks and bonds—across sectors and asset classes can help you weather volatility. Ask your advisor whether you need to make any adjustments to improve your diversification.

Another thing that can help is having a well-defined vision of your goals laid down on paper. If you haven't written down your goals, now is a great time to do it. It's a document you can bring to your family, friends, or a trusted advisor to get their point of view. Talking it over with others can help you get to a calmer, more thoughtful mindset the next time you’re confronting turbulent markets. And it will help you avoid making decisions out of fear.

3 Questions to Ask Your Advisor

  1. How can I maintain perspective on what I’m reading and hearing about the market?
  2. Could market volatility be an opportunity for me to make adjustments to my portfolio or look for new growth opportunities?
  3. When the market is experiencing big changes over the short term, how can I stay on track to meet my long-term goals?

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1 Bloomberg, March 6, 2009 to December 31, 2018


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