The secret to surviving—and potentially thriving—during market volatility may not be how much you know about current events but how you react to them. And sometimes, the best response may be to do nothing.

Timing the markets is easier said than done

An investment has the most opportunity for growth if you buy low and sell high. But unfortunately, getting the timing right for entering the market, and then exiting the market, is difficult to do successfully.
Don Bennyhoff
Don Bennyhoff
“It would be ideal if you could consistently pick the peaks to sell and the troughs to buy. But no one can do that effectively over time. In fact, market timing is difficult for professional managers, and they have a lot of tools at their disposal,” said Don Bennyhoff, a senior investment strategist in Vanguard Investment Strategy Group.

While market timing can be tricky, it can also be difficult to stick to the disciplines of investing—maintaining an appropriate asset mix, staying diversified, and rebalancing—when fear is setting the tone for the markets. “A detailed financial plan can be your steadying hand when market volatility triggers the impulse to buy or sell,” said Mr. Bennyhoff. “A long-term plan that includes a caveat for when you’ll rebalance is one of the best ways investors can protect themselves from the urge to react to financial news.”

If you rebalance your portfolio routinely when it deviates from your target asset mix (i.e., 5% or more), you tend to buy lower and sell higher without exposing your portfolio to the risks of trying to time the market—and you’ll be keeping your portfolio in line with your objectives, time frame, and risk tolerance.

Keeping calm during market dips

Nobody can control the markets, not even advisors. However, using an advisor as an emotional circuit-breaker can help you stay disciplined and resist making changes that can negatively impact your portfolio in the long term.
Kahlilah Dowe
Kahlilah Dowe

“Sometimes, investors just need to hear someone say it’s going to be okay,” said financial planner Kahlilah Dowe of Vanguard Personal Advisor Services®. “With each market downturn, many investors jump to the worst-case scenario and wonder if we’re heading for the next ‘crisis.’ An advisor can encourage investors to maintain a long-term outlook so they can embrace volatility to a certain extent. The same volatility that causes your balance to grow can also cause your balance to drop. That’s the nature of investing.”

Abandoning your asset allocation during a market low may cause you to miss out on the opportunity to benefit from a recovery. And on the flip side, swarming an asset class—like stocks—during a market high may give you an investment mix that exposes you to more risk than you’re really prepared to handle (something you don’t want to realize during a market low).

“It helps to look at your portfolio as a whole. Yes, the stock portion of your portfolio may be down X%, but that’s why you have bonds. Volatility shows you how the asset classes work together to balance out how your portfolio reacts to market movement,” said Ms. Dowe.

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

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.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor.