Behavioral Finance Investing

Managing Your Emotions During Periods of Market Volatility

BY Leslie Thompson | CFA®, CPA, CDFA™, Chief Investment Officer, Co-Founder | Mar 21, 2022

There has been an increase in market volatility and inflation concerns in recent weeks, and it’s natural to feel uneasy during times of discomfort and uncertainty.  You may wonder how to move forward to avoid potential loss or feel anxious to make changes to your portfolio.

Any expert will tell you this: you shouldn’t let your emotions drive your investment decisions.  In this article, we’re sharing some insights on how you can successfully handle periods of market volatility.

Acknowledge your feelings and pause before acting

It’s important to acknowledge how you’re feeling, but it’s equally essential not to act on emotions hastily.  This goes for selling during a significant drop or purchasing during a surge.  While this is easier said than done, there are a few ways to calm your emotions and make rational decisions, such as taking deep breaths to relieve anxiety, exercising to clear your mind, or taking a “digital break” from your smartphone, watching the news, or checking your investment accounts frequently.  If you step away from the things causing your mind to race, you’ll be able to relax and focus on what’s important.

Talk to an expert

Our expert advisors at Spectrum are always here to listen to your concerns and calm your fears when the market is tumultuous.  Taking the time to consult with an expert will help you in more ways than one.

Your advisor can evaluate the accuracy of your thinking and what’s currently happening in the market and give you some time to think things through before making any rash decisions with your investments.  The biggest goal here is to give yourself time to process and evaluate what you’re feeling and put time between your impulse to act.  If you put some space between your emotions and actions, you are more likely to calm your anxiety and engage your rational brain to make a good decision.

Remember the market cycle

The market cycle is ever-changing, and it is typical to experience periods of volatility.  Know that when the market dives, this is not the first time it has happened.  After periods of lows, the stock market recovers and claims new highs.  In addition to the human tragedy, the serious situation in Ukraine certainly gives many investors cause for concern, particularly those who have been in the market for 10 years or less. However, history tells us that not only is volatility normal, but volatility can create opportunities since some loss-averse investors will make a beeline for the exits. Consider the crises events noted below and the accompanying market volatility.

EventReaction DatesReaction DateDJIA Percentage Gain
  %Gain/(Loss)Days after Reaction Dates
Panic of 190702/15/1907 – 11/20/1907-42.96.914.729.948.3
Exchange Closed WWI07/22/1914 – 12/24/1914-10.2106.621.280.2
Woodrow Wilson Stroke09/25/1919 – 09/26/19191.35.7-4.5-16-21.8
Bombing at JP Morgan Office09/15/1920 – 09/30/1920-5.52.4-14.9-9.5-17.3
Market Crash of 192910/11/1929 – 11/13/1929-43.727.334.14611.8
Germany invades France05/09/1940 – 06/22/1940-17.1-0.58.47-5.2
Pearl Harbor12/06/1941 – 12/10/1941-6.53.8-2.9-9.65.4
Truman Upset Victory11/02/1948 – 11/10/1948-
Korean War06/23/1950 – 07/13/1950-129.115.319.226.3
Eisenhower Heart Attack09/23/1955 – 09/26/1955-6.506.611.75.7
Suez Canal Crisis10/30/1956 – 10/31/1956-1.40.3-0.63.4-9.5
Sputnik10/03/1957 – 10/22/1957-
Cuban Missile Crisis10/19/1962 – 10/27/19621.
JFK Assassinated11/21/1963 – 11/22/1963-
Martin Luther King Assassinated04/03/1968 – 04/05/1968-
U.S. Bombs Cambodia04/29/1970 – 05/14/1970-
Kent State Shootings05/01/1970 – 05/26/1970-149.920.320.743.7
Penn Central Bankruptcy06/19/1970 – 07/07/1970-7.181624.933.8
Arab Oil Embargo10/16/1973 – 12/05/1973-18.59.310.27.2-25.5
Nixon Resigns08/07/1974 – 08/29/1974-17.6-7.9-5.712.527.2
Iranian Hostage Crisis11/02/1979 – 11/07/1979-2.74.711.12.317
U.S.S.R. Invades Afghanistan12/24/1979 – 01/03/1980-2.26.7-46.821
Hunt Silver Crash02/13/1980 – 03/27/1980-15.96.716.225.830.6
Falkland Islands War04/01/1982 – 05/07/19824.3-8.5-9.820.841.8
Beirut Bombing10/21/1983 – 10/23/198302.1-0.5-6.9-2.9
U.S. Invades Grenada10/24/1983 – 11/07/1983-2.73.9-2.8-3.22.4
Continental Illinois Bailout05/08/1984 – 05/27/1984-6.42.311.510.118.3
U.S. Bombs Libya04/14/1986 – 04/21/19862.8-4.3-4.1-125.9
Financial Panic ’8710/02/1987 – 10/19/1987-34.211.511.41524.2
Invasion of Panama12/15/1989 – 12/20/1989-1.9-2.70.38-2.2
Iraq Invades Kuwait08/02/1990 – 08/23/1990-
Gulf War01/16/1991 – 01/17/19914.611.814.31524.5
Gorbachev Coup08/16/1991 – 08/19/1991-
ERM U.K. Currency Crisis09/15/1992 – 10/16/1992-
World Trade Center Bombing02/25/1993 – 02/27/1993-
Oklahoma City Bombing04/18/1995 – 04/20/19951.23.99.712.930.8
Asian Stock Market Crisis10/07/1997 – 10/27/1997-12.48.810.52516.9
U.S. Embassy Bombings Africa08/06/1998 – 08/14/1998-1.8-44.810.432
U.S.S. Cole Yemen Bombing10/11/2000 – 10/18/2000-
WTC and Pentagon Terrorist Attacks09/10/2001 – 09/21/2001-14.313.421.224.8-6.7
War in Afghanistan10/05/2001 – 10/09/2001-0.75.911.512.4-16.8
Bali Nightclub Bombing10/11/2002 – 10/13/20020.36.612.36.724.4
Iraq War03/19/2003 – 05/01/20032.
Madrid Terrorist Attacks03/10/2004 – 03/24/2004-
London Train Bombing07/06/2005 – 07/07/20050.
India Israel and Lebanon Bombings07/11/2006 – 07/18/2006-3510.916.428.3
Bear Stearns Collapse03/13/2008 – 03/14/2008-1.65.63-4.4-38.1
Russia Invades Georgia08/08/2008 – 08/16/2008-2.2-4-26-34.2-19.2
Lehman Brothers Collapse09/15/2008 – 09/16/20081.3-18.8-22.6-32.3-11.5
Israel Invades Gaza12/27/2008 – 01/21/2009-3-13.5-4.27.923.6
Boston Marathon Bombing04/12/2013 – 04/15/2013-
Russia Invades Crimea03/07/2014 – 03/14/2014-
Chinese Market Turmoil08/21/2015 – 08/25/2015-
U.K. Votes to Leave E.U.06/23/2016 – 06/27/2016-
COVID-19 Crash03/4/2020 – 03/23/2020-31.426.5404674.4

Within these observations, note that the percentage of gain or loss during the reaction period and the number of days from 22 to 253 following the end of the reaction date the percentage change in the Dow Jones Industrial Average.   The average reaction percentage change declined 7 percent, and the median declined 3 percent. While these averages minimize the time when downturns were severe (Financial Panic ’87 and COVID-19 Crash), it is important to note the market recovered within the 253 trading days following the reaction date end. The exception was 2008 when Bear Stearns and Lehman Brothers collapsed, and Russia invaded Georgia. 

Historically, markets experience a sell-off on bad news and recover when the bad news turns out to be ‘less bad’ than the direst predictions.  This brings us to the question: what to do?


Rebalancing a portfolio in a volatile market is a well-established risk-reduction technique. Rebalancing sells the asset classes that are proportionately high and buys those that are proportionately low. If the stocks have dropped, rebalancing buys more stocks. Rebalancing can be accomplished at the whole portfolio level (strategic rebalance) or just a few asset classes (tactical rebalance). Investors in a tax-deferred account like a 401(k) can use their contributions to rebalance. Thus, an investor might direct current contributions to equities if they felt equities were low. Rebalancing is simpler in tax-deferred and tax-free accounts since there is no tax friction from the trades.

Harvest Losses and Swap

A simple idea for taxable accounts is to harvest losses. If your account has a fund or stock at a loss, sell the security and either wait 31 days to replace it or buy something similar but not identical. An example might be if an investor had technology stocks that were hit hard by the recent events; they could sell those at a loss and buy something like an ETF that buys the tech sector. The ‘ Wash Sale ’ rule disallows deducting a loss on the sale of securities if the investor buys the same or substantially identical security within 30 days before or after the sale. You can’t wash index funds, like swap an S&P 500 index fund for another S&P 500 index fund, but you can swap an S&P 500 index fund for a total market index fund or ETF. You also can’t wash sales in different accounts like selling in a taxable account and buying a Roth IRA.

Roth Conversions or Contributions

An obvious strategy is to build up Roth assets in a down market, whether contributions to a Roth IRA or Roth 401(k) or converting an existing IRA to a Roth. A conversion offers more firepower since you can determine the amount to optimize the Roth and assets. Remember, you pay taxes on the conversion, so it is essential to weigh the tax ramifications.

There have been many reasons to be out of the markets, which eventually turned out to be less impactful in the long run. Geopolitical events, while unsettling, can be viewed as an opportunity or a threat.

Set realistic expectations to build confidence

At Spectrum, we understand what your wealth means to you and your loved ones.  After all, it takes much less time to expend wealth than to acquire it.  Our team is constantly working to ensure your goals are met and that your financial plan is mapped out to survive periods of market volatility.  Part of investing is taking calculated risks and understanding and accepting the outcome of those risks.  If you set realistic expectations for investing, you’ll feel more confident in your decisions, and likely won’t feel as worried when the market isn’t desirable.

No matter what the market is doing, emotions will always play a part for some investors.  This is why it is vital to have measures to help you stay focused on your goals, regardless of your emotions.

Spectrum Wealth Management, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Additional information about Spectrum’s investment advisory services is found in Form ADV Part 2, which is available upon request. The information presented is for educational and illustrative purposes only and does not constitute tax, legal, or investment advice. Tax and legal counsel should be engaged before taking any action. The opinions expressed and material provided are for general information and should not be considered a solicitation for purchasing or selling any security.