How to Keep Your Cool in a Volatile Market

The US military strikes in Iran have set off another round of headlines that might be unnerving.

The attacks add another layer of uncertainty to market worries about rapid shifts in tariff policy, unrest in various locations around the world, and the potentially sweeping impact of artificial intelligence on company profitability and economic growth.

The sheer volume of stuff happening probably has investors on edge. Here are some things you can do to keep your cool.

Why You Should Tune Out the Noise

The temptation to do something in response to major events is ever present. Why should you tune it out instead?

For one, the Trump administration has been unpredictable. Policy pronouncements that seem to be pointing in one direction one day can easily reverse course the next.

Second, it’s difficult to predict the downstream result of any given event in advance. While the outbreak of war is often followed by market losses, it’s not a given that geopolitical conflict is a negative for market returns. Paradoxically, market returns have often been positive in the one-year period following the outbreak of geopolitical trauma. That was the case after the start of the Iraq War in 2003, as well as many other conflicts, including World War I, World War II, Pearl Harbor, and Korea. (The war in Vietnam was a notable exception.)

And finally, there’s overwhelming evidence that attempting to make tactical shifts in a portfolio’s asset allocation is not just ill-advised, but detrimental. I’ve written about this topic extensively in previous articles, including several articles about the failure of tactical asset allocation funds. Suffice to say there’s no indication that even investors who focus on asset allocation for a living can consistently improve returns by shifting a portfolio’s asset mix.

What to Do Instead

One of the best ways to tune out the market noise is to go back to basics. Here are some helpful steps to take.

Check to see if your overall asset allocation makes sense.

The mix of stocks, bonds, and cash in your portfolio should be driven by your investment time horizon and risk tolerance, not what might happen with factors outside of your control. The Morningstar Lifetime Allocation Indexes can provide some general guidelines for asset-class exposure based on your age and planned retirement date. Our Role in Portfolio framework provides more specific guidance for making sure your holdings are appropriate for your time horizon and occupy a reasonable percentage of assets.

Rebalance your portfolio if needed.

If it’s been a while since you checked your portfolio’s asset mix, chances are that stocks, specifically US growth stocks, now account for a larger percentage of assets than you might expect. As I detailed in a previous article, some rebalancing may be to cut back on areas that have grown and add to areas that have been out of favor, including fixed income, value stocks, and international issues.

Don’t sweat a little extra cash.

I’m not a fan of making sweeping portfolio changes, especially if they’re driven by panicky thoughts about what might happen in the market. That said, I don’t think holding slightly more cash than usual is a bad thing given current market conditions. The shorter end of the yield curve is currently inverted, meaning that buyers of intermediate-term bonds aren’t getting much in the way of extra yield to compensate them for taking on additional interest rate risk. The 3-month T-bill currently yields about 4.3%, which doesn’t look too bad even if inflation continues running a bit higher than the Federal Reserve’s 2% target level.

Don’t get too carried away with ‘safe haven’ assets.

Despite recent volatility, the price of gold has jumped by more than 80% over the trailing one-year period, partly because of aggressive purchasing by central banks. It was trading at more than $5,300 per ounce as of early afternoon Monday. Although gold has historically fared well as a safe haven during times of market turmoil, it’s not a low-risk asset. In fact, its volatility is about on par with the equity market overall, even though its long-term returns are substantially worse. Gold is also trading at a relatively steep price in inflation-adjusted terms, which has historically led to lower returns over the subsequent 10-year period.

Consider bumping up your contribution rate to shore up retirement savings.

This last suggestion is most appropriate for younger workers who won’t be retiring anytime soon. It might feel like you’re throwing good money after bad if the market continues to be rocky, but saving more is one of the best ways to build long-term wealth. To plan for a successful retirement, it’s critical to invest early and often and continue investing through good times and bad—even when it’s difficult to do so.

Conclusion

For investors with a long-term perspective, short-term market volatility is a distraction that’s better off ignored. While the market could be in for a bumpy ride over the next few months, it’s best to stay the course and avoid making any major portfolio changes based on the latest headlines.

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			43m 37s
		 Mar 2, 2026

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