5 strategies to navigate market volatility

In the ever-changing landscape of financial markets, economic uncertainty and volatility are inevitable. However, these challenges don't have to derail your progress toward long-term goals. Much like a seasoned pilot navigating turbulence, a well-crafted financial plan can help guide you through market fluctuations.

Investors who maintain a disciplined financial plan often remain on track to meet their financial goals, even through severe market drawdowns.¹ In fact, with a financial plan in place, down markets can present unique opportunities for strategic moves, allowing you to strengthen your portfolio and position yourself for future growth.

Whether you're focused on building wealth or planning your legacy, understanding how to navigate these periods can be crucial to achieving your financial objectives.

Historically, market dips have been temporary. By maintaining a disciplined approach when the market gets bumpy and resisting the urge to make impulsive decisions based on short-term fluctuations, you can better position yourself to achieve long-term financial goals.

With that said, it’s understandable to feel unrest over short-term market movements. As a potential “solve” to those impulses, you can consider a short-term trading bucket that is separate from your long-term portfolio and holds less than 10% of your investments. That way, you can pursue active trades without disrupting your overall plan.

It’s easy to fall into a trap of inaction by overthinking the “perfect” time to invest or to take inappropriately low risks when markets get choppy. Instead, consider dollar-cost averaging, a strategic approach that involves investing consistently over a period of time, regardless of market conditions. Having a steady investment rhythm can help mitigate emotional stressors, foster a disciplined financial habit and enhance the potential for long-term portfolio growth.

Market drops, while often upsetting, can present unique opportunities to strengthen your investment portfolio. When prices decline, it opens the door to acquiring quality assets at a reduced cost, much like purchasing valuable items during a sale.

You can consider which accounts to use when buying depreciated assets during a market drop. For example, adding funds to tax-advantaged accounts such as your 401(k), individual retirement account (IRA) or 529 plan while markets are depressed may allow you to buy more shares at lower prices and capture potential future market rebounds while helping minimize the tax consequences.  

This approach not only positions you for potential gains when the market trends upwards, but also allows you to enhance the overall quality of your portfolio.

Even if the market rebounds, volatility can take a toll on your investments, because losses require proportionally larger gains to recover. Maintaining a diversified portfolio — in which you spread your investments across a wide array of assets — can mitigate this phenomenon, known as “volatility drag,” by cushioning the impact of market dips and helping you achieve steadier growth over time.

It’s also important to consider the effects of taxes and fees on your portfolio. Taking proactive steps to seek the low-cost and most tax-efficient delivery for the same investment strategy can further enhance returns and support your long-term financial goals.

Over time, market fluctuations can cause your asset allocation to drift from their original targets, potentially exposing you to unintended risks. Your long-term financial plan should determine your asset allocation, which accounts for 80%-90% of portfolio returns, making it essential to review and rebalance periodically.² By adjusting your portfolio with an eye toward your long-term goals, you can maintain the desired balance between different asset classes, such as stocks, bonds and cash.

During times of volatility, remind yourself of the reasons you invested in the first place and the long-term goals you are working toward. It's crucial to stay grounded in the knowledge that markets have historically recovered over time and that a disciplined mindset can help you navigate these fluctuations with confidence.

Article Footnotes:

¹ Morgan Stanley’s Global Investment Committee, Plan Not to Panic: Navigating Market Volatility with Financial Planning, by Lisa Shalett, Daniel Hunt, Eve Pickhardt, Stephanie Wang, and Thomas v. Caruso, published April 26, 2024.  

² Morgan Stanley’s Global Investment Committee, What’s Your Investment Benchmark? By Lisa Shalett and Patrick Gremban, published June 26, 2024.

CRC# 5150855 02/2026