Key Takeaways
- Retreating to cash is the classic volatile markets mistake investors make.
- A buy-and-hold mindset is better than using “defensive” strategies like a tactical investment strategy or turning to alternative assets.
- You don’t want to have geopolitical tactics as part of how you’re managing your investment portfolio.
- If you’re putting a large share of your portfolio to work in a beaten-down company or sector from volatility, you may not have caught the bottom.
- Not everyone should assume that doing nothing is the right call in down markets or volatile markets like the current one.
Susan Dziubinski: I’m Susan Dziubinski, co-host of The Morning Filter podcast. 2026 has been a volatile year so far, and uncertainty around interest rates, inflation, the economy, tariffs, and even private credit is likely to keep investors on their toes for the foreseeable future. So, given that, what portfolio mistakes are investors most likely to make during a prolonged period of market volatility, and how can they avoid making them? Joining me to tackle the topic is Christine Benz. Christine is Morningstar’s director of personal finance and retirement planning, cohost of The Long View podcast, and author of the book How to Retire. Christine, thank you for being here.
Christine Benz: Susan, it’s great to see you.
Don’t Retreat to Cash in Volatile Markets
Dziubinski: It’s good to see you again. Now, you say that one common mistake that investors make in volatile markets is retreating to cash. And I think we all sort of know that’s a bad idea, but talk a little bit about why it really is kind of a bad move for most people.
Benz: This is the classic volatile markets mistake. It’s a bad move because even though it provides that short-term relief like, “Ah, I’m away from the mayhem,” you’ve got to figure out when to get back in. So, you’ve got to have two decisions right as the saying goes. You have to get out at the right time and know when to get back in. Jeff Ptak wrote a really great piece a couple of weeks ago where he looked at how those terrible days for the markets tend to be inextricably linked to the really good days. Often, they’re side by side on that day when you’re congratulating yourself that you’re out of the market. Well, guess what? The next day might be a really good one. It’s difficult to time. It’s not something I would advise people to engage in. They should have some cash reserves set aside on an ongoing basis to help meet their liquidity needs, but in terms of moving big parts of their long-term portfolio in and out, it’s just not something that I would advocate for.
Why Investors Are Better Off With a Buy-and-Hold Mindset During Volatility
Dziubinski: Now, another mistake that investors might fall prey to during extended periods of market volatility are messages they’re likely seeing from asset managers promoting “defensive” strategies or things to help provide some buffer or ballast in their portfolios. Talk a little bit about what some of those strategies might look like or sound like, and then talk about why that’s a mistake for many investors.
Benz: Right. As you said, Susan, we tend to see a little more enthusiasm from the asset management for these kinds of approaches. After we’re well into a bear market, we start seeing tactical asset allocation funds, which move their asset-class exposures around a little bit in an effort to capitalize on what might do well in the future. That’s the main flavor that I’m talking about here. The problem is when you look at the data, and of course, it has been a pretty long-running bull market until very recently, but when you look at the data, they just haven’t been that good. These are professional money managers, which is another caution against doing this stuff on your own. So, when you look at the 15-year return on the typical tactical asset allocation fund, it’s about 5%, whereas a very plain-vanilla 60/40 US balanced index would be up almost 8% over that same 15-year stretch.
So, I think a buy-and-hold mindset is better than using some sort of tactical investment strategy, whether yourself or delegating it to a fund. The other big flavor that can sometimes get pedaled in an environment like this would be some of the alternative assets, because we are in the midst of an environment where stocks haven’t been particularly great, but nor have bonds. They haven’t been that great shock absorber necessarily that we look to bonds to be, and that’s the big sell for alternative strategies—when neither of these asset classes are doing all that. Well, the problem is, and of course it’s a broad basket, alternatives, but they can be opaque, and they can be expensive. At the end of the day, I’m just not seeing what the typical investor gets from them that they couldn’t get from having a portfolio that’s well diversified across the core asset classes and is staked in very cheap, maybe index fund-type products.
Dziubinski: Especially if you have a long enough time horizon on top of it all, right?
Benz: Exactly.
Don’t Let Geopolitical Events Disrupt Your Investing Strategy
Dziubinski: Now, sometimes, Christine, geopolitical events will sort of overly influence or color how an investor is thinking about his or her portfolio, which seems natural, but you say that can really be a mistake. Talk about that.
Benz: Right. The problem here is that by the time you realize that geopolitical events are as they are, and how it might affect various market segments, you’re often a day late and a dollar short. So, energy stocks, I think, provide a great recent example where, when the onset of the war in the Middle East sent energy stocks soaring, that happened very, very quickly in the space of a couple of days. If five days later, you’re filling up your gas tank and thinking, “Hey, it might be a good time to buy energy-related stocks.” Well, guess what? You missed the best part of their run. To me, that’s the reason why you don’t want to have geopolitical tactician as part of how you’re managing your investment portfolio, simply that you’re playing with the pros here and they’re often a little bit quicker on the draw than you might be.
Why Buying Beaten-Down Securities From Volatility Could Be a Mistake
Dziubinski: Now, sometimes investors will think of volatile markets as a great time to sort of back up the truck and buy really beaten-down securities that maybe they’ve had an eye on, whether that’s particular stocks, maybe some ETFs, whatever. Why can that train of thought be a mistake?
Benz: Yeah, it’s a little bit counterintuitive because certainly value investing, buying beaten-down securities, it’s a time-tested strategy. Some of our favorite fund managers here at Morningstar use some version of this approach. The key risk factor is assuming that you’ve caught the absolute bottom, and so you’re putting a large share of your portfolio to work in that beaten-down company or sector, you may not have caught the bottom. If this is your strategy with a portion of your portfolio, to look for some of these beaten-down names, protect yourself. Dollar-cost average in over a period of days, maybe take a diffuse approach, where rather than just pouncing on that one unloved stock, maybe you’re buying an ETF that invests in that beaten down sector more broadly. I would tend to want to approach it in a little more of a chicken way to help take the edge off in case I’m not right about some of these unloved names.
Don’t Miss Out on Benefiting From Volatility
Dziubinski: Lastly, you say that it can be a mistake for some investors to do nothing or to wait out that market volatility. What advantage might there be for an investor to use volatility to their advantage? How do you know if you’re the person to do that and what that strategy or approach would be?
Benz: Right. I sometimes hear in these environments, Susan, it’s sort of this mindset of: everybody freeze, nobody do anything. That’s mostly good advice, especially if you’re a younger investor; you should sit tight with equities. The reason I like to talk about this is that there are many older adults who are getting close to retirement. They’ve had a great experience in stocks. They’ve been extremely reticent to derisk their portfolios. So, they’re coming into retirement with very equity-heavy portfolios. For them to assume that they should sit tight with stocks isn’t necessarily the correct assumption. We have had a little bit of volatility in the market, but it hasn’t been terrible. If you do have an overly aggressive portfolio, it’s not a terrible time to take something off the table, tip it into high-quality bonds, maybe a bit of cash. The virtue of that is if you are about to retire, you would be able to take from that safer stuff if you need to take withdrawals from that portfolio, and you could leave that equity portfolio alone. So not everyone should assume that doing nothing is the right call in down markets or volatile markets like the current one.
Dziubinski: Well, Christine, as usual, great advice. We appreciate your time.
Benz: Thank you so much, Susan.
Dziubinski: I’m Susan Dziubinski. Be sure to tune into The Morning Filter and The Long View each week wherever you get your podcasts. Thanks for watching.
Watch 5 Things to Do Today If You Want to Retire in 2030 for more from Christine Benz.
