Market Volatility FAQ

Markets move. Sometimes they move a lot.

A sharp drop in stocks, a sudden jump inbond yields, or a spike in the VIX can make even experienced investors uneasy. Headlines get louder, predictions get more confident, and it can feel like you need to do something right now.

Usually, the first step is simpler than that: understand what's happening, revisit why you're invested the way you are, and avoid making a decision based on emotion.

Here are the questions we hear most often when markets get bumpy.

Understanding volatility

What is market volatility?

Volatility describes how much, and how quickly, investment prices are moving.
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Markets don't rise in a straight line. Stocks can see significant declines even during long stretches of wealth creation. Bonds can be volatile too, especially when expectations for inflation and interest rates shift quickly.
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Volatility can be uncomfortable, but it's a normal part of investing.

What is the VIX?

The VIX is often called the market's "fear gauge." It measures what the options market expects for near-term volatility in the S&P 500. When uncertainty rises, the VIX usually rises with it, sometimes sharply. Here's the important part: a high VIX tells us investors expect bigger market moves. It doesn't tell us which direction the market will go next. A spike can feel like a warning to get out. All it really tells us is that fear has gone up, not that anyone suddenly knows what happens next.

Should I sell when the VIX spikes?

Generally, a spike in fear isn't a reason to sell on its own.
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Selling means getting two decisions right: when to get out, and when to get back in. The second one is often harder. Markets can recover quickly, sometimes while the economic news still looks terrible. Waiting until things "feel safe" can mean missing a meaningful part of the recovery.

That's why we prefer a plan thatanticipates volatility over trying to predict it.

When markets drop

What should I do when the stock market suddenly drops?

Start by asking whether anything has actually changed about your financial plan. Has your time horizon changed? Your spending needs? Your ability or willingness to take risk?

If the answer is no, a market decline on its own may not call for a change to your portfolio. Your portfolio was built knowing that markets sometimes fall. Volatility doesn't mean the plan has failed. It's one of the reasons you have a plan.

Why not move to cash until things settle down?

Because "until things settle down" is much harder to pin down than it sounds.

You might avoid some further losses, but you still have to decide when it's safe to reinvest. Markets don't send an announcement when the uncertainty is over, and they often start recovering before the headlines improve.

That's how moving to cash can turn temporary volatility into a permanent investment decision.

What if everyone seems to think the market is going lower?

Markets reflect the expectations of millions of investors every day. By the time a risk is obvious and all over the news, prices may already reflect a lot of that concern.

That doesn't mean markets can't fall further. They certainly can. It just means knowing the news isn't the same as knowing what markets will do next.

How your portfolio is built for this

Why own bonds if bonds can decline too?

Bonds aren't meant to eliminate all volatility. Their main role in a diversified portfolio is typically to provide income, diversification, liquidity and more stability than stocks.

Bond prices can fall when interest rates rise. But higher rates also mean maturing bonds and new money can generally be reinvested at higher yields. For a diversified bond portfolio that's continually maturing and reinvesting, rising rates aren't necessarily bad news for a long-term investor.

What if stocks and bonds fall at the same time?

It can happen. Diversification doesn't mean every investment moves in the opposite direction every day, month or year. Different assets do different jobs over different periods.

The goal isn't a portfolio where nothing ever declines. That portfolio doesn't exist. The goal is one that can support your financial plan through many different market environments.

What about investors who are retired or need money soon?

This is exactly why asset allocation and financial planning matter.

Money you need for near-term spending shouldn't necessarily carry the same market risk as money meant for 10, 20 or30 years from now. A well-built portfolio accounts for upcoming withdrawals, income needs, liquidity and time horizon before volatility shows up. The goal is to avoid being forced to sell long-term investments just because markets happen to be down.

Should my portfolio change when markets get volatile?

Sometimes, but not simply because markets are volatile.

Market swings can create opportunities to rebalance back toward your intended asset allocation. More importantly, portfolio changes should be driven by changes in your life: your circumstances, goals, time horizon, cash-flow needs or risk tolerance. They shouldn't be driven by fear from today's headlines.

Isn't "stay invested" just doing nothing?

No. There's a big difference between doing nothing because you don't have a plan and deliberately staying invested because you do.

A well-managed portfolio is still being watched. Investments are reviewed, asset allocations are evaluated, portfolios can be rebalanced, cash needs are considered and new information is assessed. Sometimes the right move after all that work is to make a change. Sometimes it's to make no change at all.

Market Volatility FAQ

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