A global recession seems to be looming over investors. According to a probability model run by The Conference Board (opens in new tab) in October 2022, there is a 96% likelihood of a recession in the U.S. within the next 12 months. Expectedly, investors are spooked, and rightly so: Interest rates have increased, down payments have disappeared, and retirement timelines have shifted. The markets are constantly changing and have proven to be unpredictable.
An unpredictable and unstable market can easily impact our emotional state and lead us to make rash decisions. These rash decisions are common. According to a study by MagnifyMoney (opens in new tab), 66% of investors have made an impulsive or emotionally charged investing decision they later regretted. Even experienced investors with firm goals, focused exclusively on long-term growth, can become impulsive and reactionary when faced with changing variables like market movements, low company earnings and corporate actions.
This is not to say that we should exclusively do nothing during market volatility. Once we acknowledge that the impulse to sell right away during a downturn is governed by our emotions, we can begin to view market downturns as an opportunity to reflect on our strengths and weaknesses as investors, evaluate changing opportunities and double down on our long-term goals.
In my experience, there are five important investing choices investors can make during volatile times. Which of the following actions an investor should take depends entirely on their current portfolio, economic goals and lifestyle.