Reacting to Market Volatility

Consider historical volatility when reacting to current swings in the market.

by Patrick V. Masso, CFA, Heartland Bank Wealth Management
Patrick V. Masso, CFA, Heartland Bank Wealth Management

The magnitude of stock market swings this year has been breathtaking. Between February 19 and March 23, the S&P 500 Index declined more than 35 percent—the quickest decline of such magnitude ever. Following this aggressive selling has been one of the best 50-day periods on record.

How does this compare to other periods of heightened volatility? More importantly, how should you react?

The Historical Record
Over the last 40 years, the S&P 500 Index has generated positive annual price returns 75 percent of the time. However, it has not been a smooth and steady ride. The historical record shows it is common to experience double-digit declines in the stock market. Of the 30 positive returning years over the last four decades, 13 suffered double-digit declines at some point during the year.

Calendar year 2020 appears similar in magnitude to 1987. Despite an intra-year decline of 34 percent (much of which occurred in the early part of the fourth quarter), the S&P 500 Index ended up finishing positive two percent in 1987.

The path forward remains unclear. What we do know is that we are currently experiencing a historically sharp recession due to the coronavirus and subsequent efforts to limit economic activity. The unemployment rate shot up in the blink of an eye—from 50-year lows to highs we haven’t seen since the Great Depression began in 1929.

However, monetary and fiscal policymakers have provided unprecedented levels of support in an attempt to combat the economic pain. Whether these (and likely future) efforts will be enough to prevent permanent damage remains to be seen. 

Investing Amidst Volatility
As history demonstrates, stock market volatility ebbs and flows. The important point is how you throttle your behavior as an investor during these tumultuous periods. Consider these tips:

  1. Develop a personal investment strategy. Consider your personal risk tolerance, time horizon and future needs to create an appropriate mix of assets.
  2. Know what you own. Understand the types of financial assets in your portfolio—including how volatile they can be. This will help set realistic expectations for future swings so you can distinguish between normal and abnormal behavior.
  3. Stick to your strategy. Keep your emotions in check and steer clear of “strategy jumping” when inevitably tough times abound. If you are overcome with emotion and the urge to switch, chances are your strategy has not been well designed. PM

Patrick V. Masso, CFA, is Vice President, Investments Team Leader, at Heartland Bank Wealth Management. He can be reached by email at

This information is not intended to be and should not be treated as legal advice. Readers should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific advice from their own counsel.