Personal finance is a unique blend of cold, hard data and mathematical equations, and deeply personal, emotional decisions. You can know all the right investment, retirement, and tax strategies, and still be subject to emotional decision-making. 

That’s why having a financial plan you can comfortably rely on through market twists and turns is so important. It won’t completely solve your desire to change course or take away all feelings of uncertainty, but it can be a guiding path. 

There are some parts of personal finance where emotions should be taken out of the equation as much as possible—investing is one of those areas. Investing is a long-term plan for growing and building your wealth, an area where strategy and math should rule. 

When considering your investments, it’s important to understand that the market has a history of volatility and subsequent effects on investors. There’s nothing new under the sun, and that includes common mistakes investors make in volatile markets. 

The U.S. Stock Market 

The stock market in the United States is a critical component of our free-market economy. It refers to buying and selling shares of publicly traded companies through two stock exchanges, the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automatic Quotation System (NASDAQ)

The stock market is regulated by the Securities and Commissions (SEC) and can be an indicator of how well the overall economy is performing. Many investors have a portion of their portfolios invested in the markets. 

Investing in a Volatile Stock Market  

Volatility in a securities market refers to the stocks rising or falling more than one percent over a continuous period of time. This fluctuation is a measure of the magnitude of price changes in the stock market. 

A higher volatility means there are larger swings, indicating a higher level of uncertainty, risk, and a chance for significant losses or gains. While lower volatility indicates lower price swings, making the market more predictable and stable. 

Many factors contribute to market volatility, including politics, health crises, corporate earnings readouts, interest rates, current events (such as a presidential election), inflation, supply and demand, and other factors. 

Bull vs Bear

A bear market is characterized by increased volatility, stock price declines, slow economic growth, and an overall pessimistic sentiment among investors. While a bull market is characterized by decreased volatility, stock price inclines, economic growth, and investor optimism. 

Both markets can lead investors to drastically change their investment strategy in order to preserve their capital or capitalize on market trends. It’s important to note, however, that no one can accurately and consistently predict the stock market’s performance. 

Top 5 Mistakes Investors Make in a Volatile Market

Ideally, the best time to rebalance and make changes to your investment portfolio is before the market becomes volatile, which, unfortunately, is often impossible to predict. But when market volatility begins, it’s often best to avoid these mistakes and stay your course until things settle down. 

Get to know these five common mistakes investors make in a volatile market so you can learn to avoid them yourself: 

  1. Letting your emotions lead.
  2. Panic selling.
  3. Staying too liquid.
  4. Failing to diversify.
  5. Navigating uncertainty alone.

1. Letting your emotions lead

There are plenty of emotions that may lead us during times of market volatility including impatience, fear, greed, and social comparison. 

As we mentioned, market volatility is marked by drastic price swings—making it tempting for investors to become impatient and chase immediate gains to counteract recent losses. These short-term strategies, however, often fail because they are rooted in emotions (greed being one of them), rather than long-term investing perspectives. 

Market volatility also brings fear and panic to the hearts of investors—especially since market volatility is often associated with stressful and uncertain times (such as the COVID-19 pandemic). Fear can help save us from life-threatening situations as a basic survival method, but when it comes to leading us in our investment choices, it’s a very poor guide. 

Social comparison can also lead us to deviate from our long-term investing plans. When you hear about a hot investment tip or trick that worked for your cousin’s neighbor’s best friend, it can be tempting to want to try it out—especially when your portfolio isn’t looking too good. But chasing a “new” investment or strategy has the potential to lead you astray. Consistent, careful investing might sound boring, but it’s often your best bet for building long-term wealth. 

Allowing emotions to lead your decisions can derail the discipline and patience required to make smart investment decisions. Setting realistic expectations and thoroughly researching your investment choices can help mitigate the strong emotions associated with investing. 

2. Panic selling 

When your portfolio is steadily decreasing day after day, it can be tempting to want to “stop the bleeding” and sell. But if you do this, you guarantee your losses because you’re not giving your stocks a chance to rebuild and recover. 

These impulsive decisions are very common and understandable—it feels more productive to do something than just sit back and wait. However, it’s important to stick to your financial plan and have a long-term perspective. You can even look back at the market’s history to reassure yourself that market volatility is normal. 

Selling your shares prematurely in a panic can lead you to miss out on some of the best days in the market (which are often close to the worst days in the market—again, something no one can accurately predict). 

When you remember that investing is a long game, it will be easier to suppress your short-term concerns and panic. In the future, you’ll look back and see that the temporary dip was trivial in your overall portfolio performance. 

3. Staying too liquid 

Witnessing market volatility can lead investors to want to stay out of the game completely—which psychologically, makes perfect sense! If we see our portfolio (and those of our friends and family) nose-dive, it can make us want to cash out and sit on the sidelines. 

But as we mentioned above, some of the market’s best days happen during market volatility, and missing out on the best days can be detrimental to your portfolio. There’s a reason “time in the market, not timing the market” is a common phrase. 

When stock prices decrease, they are what we like to call “on-sale”. Sales can be easily recognized outside of the market, but inside the market, it can be harder to conceptualize. Consistently investing, regardless of market volatility, can allow your money to continually buy shares—and during market downswings, you’re getting a great price! 

We want to note that we’re referring to money you’ve set aside for investing purposes, not a liquid emergency fund. Having a liquid emergency fund can help alleviate fears during market volatility because it can provide you with a safety net for immediate cash needs. 

4. Failing to diversify 

Market volatility can feel particularly painful when your portfolio is primarily wrapped up in the market. A properly diversified portfolio can have assets tied to the market, but it won’t be in it 100%. 

Often during turbulent times, different asset classes, industries, and even parts of the world perform differently. Diversification helps mitigate risk and allows your portfolio to be exposed to different types of investments, which will all perform differently throughout your investing journey. 

5. Navigating uncertainty alone 

Maneuvering market volatility can be scary when you’re trying to go about it alone. Navigating uncertainty without a guide can make it tempting to chase hot tips or make irrational, emotional decisions. 

But when you have someone in your corner, encouraging and reassuring you, it makes market swings more bearable. The financial planners and advisors at Five Pine Wealth Management are the encouragement and support your financial portfolio needs. 

We understand investing emotions, temptations to panic sell and stay liquid, the detriments of not diversifying, and the loneliness of navigating uncertainty alone. 

That’s why we offer our services to the everyday investor. The investors looking to build sustainable wealth. The investors working hard to care for their families and communities. Investors like you. 

To see how we can help you navigate market volatility and avoid common investing pitfalls, check out our website or shoot us an email at