There are 10 letters in the word “volatility,” but in investing circles, it’s often seen as a four-letter “dirty” word. It’s understandable because many investors are programmed to believe that increased market turbulence leads to more downside for risk assets.
Unfortunately, the conversation typically ends there. “Volatility is bad” and move along. Yes, drawdowns, particularly the big ones, are unnerving and affect returns. The more market participants can do to limit or avoid drawdowns, the better their long-term performance will be.
But for all the talk about style rotations and the like in the face of increased volatility, there’s significantly less chatter about turning topsy turvy markets into forces for good and seeing the forest of opportunity through the trees of volatility. Believe it or not, there’s compelling historical precedent for equity market commotion giving way to upside.
Be Greedy When Others Are Fearful
Warren Buffett famously said “be greedy when others are fearful” and if he said (he did), it’s worth listening and putting into practice, yet many investors don’t follow that path.
To some extent, it’s understandable and the current environment highlights as much. Not that everything was perfectly sanguine entering this year, but it’s not a stretch to say most investors didn’t have all of the following on their 2026 bingo cards: weak economic data, Federal Reserve disappointment, artificial intelligence hurting growth stocks and geopolitical calamity. It’s no wonder investors are frazzled.
“The CNN Fear & Greed Index has moved into extreme fear territory; the AAII Sentiment Poll has shown more bears than bulls for four consecutive weeks; the NAAIM Exposure Index has fallen to its lowest level since last April; and the Bank of America Global Fund Manager Survey has dropped to a six-month low,” notes Nationwide’s Mark Hackett. “Volatility has followed suit, with the VIX Index spending much of March above 20.”
However, none of that means Buffett’s quote should be ignored. It actually means now is the time to remember it and use it. The chart below, courtesy of Hackett, confirms that periods of elevated volatility often lead to upside for stocks.
Staying Invested
There’s no denying that if we had crystal balls and could time exactly when markets peak and bottom, we’d all have a lot more money. Alas, those crystal balls don’t exist, meaning that even during stressful, it’s appropriate for most market participants to stay invested.
Advisors can help clients accomplish that objective not just with sound strategies, but tapping into their communication skills to keep clients informed about what’s happening and why volatility is rising. A case can be made it’s communication that will carry the day and help clients stick with their long-term plans, which is a good thing.
“Investors who tried to time volatility peaks, trade headlines, or react emotionally during periods of extreme market stress rarely captured these outcomes,” adds Hackett. “Those who did were investors who stayed disciplined—maintaining diversified portfolios to manage turbulence and remaining invested through the cycle to fully participate in the recovery.”