Understanding Market Volatility: How to Stay Calm and Invest
- Perron Team
- Jun 17
- 3 min read
Updated: Jul 31
Market volatility can trigger panic for some investors. News headlines often focus on stock prices crashing and fears of broader economic downturns. Experiencing emotional responses to market fluctuations is not unusual. It can be nerve-wracking when you begin to see your investment account balance decrease, even if only temporarily, due to a market downturn.
Recent Events Shaping Investor Sentiments
At the beginning of 2024, many investors felt cautious optimism. The change in U.S. leadership offered hope for economic growth. However, this optimism quickly faded in April when significant trade policy announcements were made, and the market reacted negatively. On April 2nd, we saw a panic unfold when the S&P 500 fell over 12% following the Liberation Day announcements to reach a low on April 8th.
Following the April 8th sell-off, stocks rebounded over 18% by May 30th, 2025. This illustrates how quickly markets can change. Staying informed and aware of these fluctuations is crucial for any investor.
A common measure of market uncertainty is the CBOE Volatility Index (VIX). This index gauges the expected volatility of the U.S. stock market over the next 30 days. As shown in the second figure, the VIX spiked sharply on April 8th, the same day the S&P 500 hit its lowest point between April 1, 2025, and May 30, 2025. The inverse relationship between falling stock prices and rising market volatility is clearly illustrated in both Figures 1 and 2.
The Importance of Staying Invested
Remaining calm and committed during times of volatility can be difficult, but it can pay off. For example, if you remained invested from April 1st to May 30th, the S&P 500 increased by approximately 4%. Considering all of the negative news in April, that's not too bad!
Conversely, if you panicked and sold your investments on April 4th, then bought back in on May 30th when the negative news subsided, you would have missed a recovery of over 16% during that time. Such missed opportunities highlight the risks of acting on impulse.
The Cost of Missing Market Opportunities
History shows there is no perfect time to invest, and trying to time the markets is nearly impossible. The chart below demonstrates how missing the best days can significantly hinder returns over the long run. For example, missing the best 20 days during a 20-year period can lead to a 3.5% return. In contrast, remaining fully invested can yield a return of 10.4%.
There is an old saying that still resonates today: “Time in the market beats timing the market.” Market downturns, corrections, and recessions are inevitable parts of the investing cycle. When these happen, remember your long-term goals. It may be best to ignore the headlines and stay invested.
Reassessing Your Investment Strategy
In times of uncertainty, it’s natural to question your investment strategy. Here are some key considerations:
Revisit Your Goals: Take a moment to reassess your financial goals. Are they still aligned with your current situation?
Evaluate Your Risk Tolerance: Your risk tolerance might change as market conditions fluctuate. Consider how comfortable you are with market risk.
Diversify Your Portfolio: Diversification can help mitigate risks. Review your portfolio to ensure it includes a range of assets.
By taking these steps, you can develop a more resilient investment strategy that helps you navigate market volatility.
If you have questions or concerns about market volatility, don’t hesitate to reach out to your team at CPWM to discuss the impacts of market volatility on your investment goals.
Remaining informed and calm during market fluctuations is key to successful investing. With a clear understanding of the past, present, and future of the market, you can make wiser decisions for your financial future.