Market volatility is an important part of how markets function. It allows investors to see how prices may fluctuate over time, and helps them to avoid losing their money if the price of an asset falls too much. However, it can be unsettling for individuals who are trying to build wealth and achieve financial security. In fact, a recent Allianz study found that nearly three-fourths of those surveyed are concerned that continued market volatility will negatively impact their long-term financial plans for goals like retirement.
A key driver of market volatility is uncertainty about future economic growth and policy changes. International conflict, political events, and interest rate increases all contribute to market volatility by creating a climate of doubt about the future.
In addition, computer algorithms that use data and information about individual stocks can amplify the effect of market fluctuations by buying and selling shares based on the slightest changes in price. This rapid reaction can lead to wild price swings even in a stable market.
While these factors can increase market volatility, there are also a number of ways that individuals can mitigate the effects of a volatile market. One way is to diversify their investments. This can help reduce risk by spreading their investment dollars across a variety of asset classes, which means that the loss in one class is offset by gains in another.
Anxiety during market turbulence is normal, but it can cause people to make decisions that could hurt their long-term financial goals. That’s why I often recommend a collaborative approach for high-net-worth clients: mental health professionals can help address the psychological aspect of their anxiety, while financial experts provide the technical reassurance and strategic adjustments needed to navigate volatile conditions.