It’s safe to say that 2025 has given us plenty of jump scares, but so far, markets have done fairly well overall. Since bottoming out in April, the stock market has enjoyed an enduring rebound and ended the third quarter 8% higher.
During any market rebound, many investors believe they should capitalize on positive performance. When returns are appealing, it’s natural to think you should get more involved in the market or look for strategic opportunities before it’s too late. Unfortunately, these automatic reactions to positive market performance are examples of behavioral biases. Our human tendency toward herding behavior prompts us to follow the crowd and jump on popular investments. And a fear of missing out can push us to buy before we lose our chance. In these situations, our behavioral biases can be a problem, as our instincts may convince us to disregard traditional and tested investing lessons in lieu of following our emotions and gut reactions.
Such behaviors can also be problematic in the long term, because these responses to positive events are reactions to things that have already happened, not necessarily a plan for what might happen in the future.
Instead of letting excitement and emotions lead us down the wrong path during a market rebound, investors can make the most of better times by using them to prepare for future market volatility.
Read more: 4 Ways Your Clients’ Biases Are Costing Them Money
Lock in a Market Volatility Plan
It may seem out of place to think of market volatility during rebounding or steady markets, but it’s actually the ideal time to prepare for future volatility.
When investors do not plan for market volatility, they may be forced to make tough decisions while under the emotional stress of watching their life savings fluctuate with the ups and downs of markets. It’s safe to say that many of us don’t make the best choices under such stress.
During calmer periods, we are more likely to be in the right mental state to lay the groundwork for future decisions that we may have to make during volatility.
Investors should lock in a course of action before volatility strikes. Creating a market volatility plan can help prevent behavioral mistakes during market turbulence, giving you a map to follow for making decisions under uncertain market conditions.
What Should Go Into a Market Volatility Plan?
To help investors create a market volatility plan, we consulted the experts. We captured the experiences of financial advisors who have guided clients through difficult markets. From their experiences, challenges, and lessons, we extracted best practices that investors and advisors can use to help develop a plan for managing market volatility.
Here are a few lessons you can implement in your volatility plan.
Line Up Trusted, Well-Rounded Sources
Advisors noted that during market volatility, many clients just wanted to understand what was happening in the market and turned to their advisor as a trusted source.
As an engaged investor, you can probably expect to have some questions during volatile times. In your plan, take note of what sources you will depend on, such as specific industry professionals you follow, certain finance organizations, and/or a financial advisor. Whatever sources you choose, make sure they will provide accurate, in-depth, and well-rounded information. During times of volatility, we tend to pay more attention to information that is negative and inflammatory. Having a set plan for which sources you will turn to can help prevent you from falling prey to triggering messaging.
Start With a Reminder
During uncertainty, it is easy to get swept up in short-term thinking. Making well-rounded financial decisions means we must consider their long-term consequences. To extend your time horizon for decision-making, plan to start any investing conversation by reminding yourself of your long-term plans. Advisors in our sample noted that many client conversations included a strategic review of their financial situation before any decisions were made, prompting clients to consider their entire financial picture first.
To incorporate such a nudge in your market volatility plan, include a goal-setting process. By actively engaging in goal-setting, you can bring your long-term aspirations to the forefront and keep them in mind when making decisions during bumpy times.
Define Your Investing Principles
Advisors in our sample noted that, when times were tough, both they and their clients felt reassured by having established their investing principles ahead of time. After reviewing them, advisors and their clients remembered that these principles had served them well over the years and, by sticking to them, chances are things would again go in their favor.
Before market volatility hits, take the time to write down your own investment principles. These personal guidelines should define the framework you use when making your investment decisions. For example, what factors do you consider before making changes to your investments? What determines a “good” buy from a “bad” one? These principles can be as detailed or vague as you need, and they can (and should) come from a variety of resources and experiences. You can emulate investing giants like Warren Buffett or other trusted sources like Morningstar’s Dan Lefkovitz.
As history has shown, the question is not whether market volatility will occur but when it will occur. During times of relative calm in financial markets, one of the best things an investor can do is to prepare for future volatility.
