The markets are in a period of heightened volatility, and whether you're a new investor or a seasoned one, this kind of uncertainty can be unsettling. One day, the market surges. The next, it slides. And while it’s tempting to act on instinct—whether that’s to buy during a surge or sell during a dip—reactionary investing often leads to long-term regret.
In this blog, we’ll explore what recent market volatility means for the average investor, the psychology behind panic buying and panic selling, and why trusting a plan, not emotions, is your best bet in uncertain times.
What Does Market Volatility Look Like?
Volatility refers to the rate at which the price of investments increases or decreases. For most investors, it means waking up to green one morning and red the next.
But here’s the truth: Volatility is normal. In fact, history shows that markets have almost always recovered from disruptive downturns and gone on to reach new highs. According to data from the S&P 500 over the last 35 years, despite numerous intra-year drops—some as steep as 49%—only nine of those years ended in negative territory.
This is crucial because it proves that staying the course often yields better results than reacting to temporary fear.
The Emotional Trap: Panic Buying and Panic Selling
Volatility can cause panic. And panic can lead to one of two common investor missteps:
Panic Selling: Often triggered by a sudden drop in market prices or adverse news. Investors, driven by fear of further losses, may sell off assets without thorough analysis, potentially locking in losses and missing subsequent recoveries. Occasionally, trading halts are set to prevent panic selling.
Panic Buying: In the stock market, panic buying refers to the rapid purchasing of securities by investors driven by the fear of missing out on potential gains, often leading to inflated asset prices.
These short-term emotional responses can sabotage long-term gains. For example, if you had invested $100,000 in the S&P 500 and stayed fully invested over the last 20 years, your investment could have grown to $717,504. But if you missed just the top 10 performing days in that same period, your return would drop to $328,713—less than half.
Market Timing Rarely Works
Many investors believe they can "time the market"—getting in before it goes up and out before it crashes. But study after study shows this is nearly impossible to do consistently. Missing even a handful of the market’s best days can dramatically reduce returns.
Similarly, bond investors who sell during downturns risk locking in losses. Historically, bond market downturns last just a few months, while rebounds often last for years with average returns over 30%.
What Should You Do Instead?
Understand that Volatility Is Normal.
Short-term market drops are inevitable. But over long periods, the stock market has generated positive returns 100% of the time for 20-year periodsPrinciples of Long-Term….
Stick to Your Long-Term Plan.
Having a well-balanced, diversified portfolio aligned with your risk tolerance and financial goals is key. A selloff, a correction, or even a bear market is not a signal to abandon your strategy—it’s a reminder of why you have one.
Work With a Financial Professional
An advisor can help you make decisions based on logic, not fear, and ensure your investments align with your short- and long-term goals.
Final Thoughts
Market volatility is a natural part of investing. What separates successful investors from the rest isn't a magic ability to predict the market—it's the discipline to stay invested, remain calm, and trust the process. Avoid the pitfalls of panic buying or selling. Let your financial plan—not your emotions—be your guide.
And remember: history doesn’t repeat, but it often rhymes. The markets have seen downturns before, and they've always bounced back.
Additional Resources:
MFS Investment Management. Principles of Long-Term Investing Resilience Playbook. 2024.
MFS Investment Management. Buy Low, Sell Why? Equities Edition. 2024.
MFS Investment Management. Buy Low, Sell Why? Bonds Edition. 2024.
MFS Investment Management. Managing the Ups and Downs: Equities Edition. 2024.
MFS Investment Management. Managing the Ups and Downs: Bonds Edition. 2024.
MFS Investment Management. Asset Allocation Diversification – 20 Years of the Best and Worst. 2024.