Market Volatility: What to Do When Markets Get Rough
How to stay disciplined during market volatility in Canada, why reacting emotionally to a downturn usually costs more than the downturn, and what to review.
When markets get rough, the most reliable move is usually to do very little. Confirm that your plan still matches your goals and time horizon, keep contributing on schedule, and resist the urge to sell into a decline. In most cases the lasting damage to a portfolio comes not from the downturn itself but from the decision to react to it at the wrong moment.
This is easy to say and hard to live through. A falling market feels like information demanding action. This article is for the investor who wants a calm, practical framework for what to actually do, and what to leave alone, when headlines turn alarming.
Volatility is normal, not a malfunction
Equity markets do not rise in a straight line. Declines, corrections and the occasional sharp drop are the ordinary cost of the long-term returns that make investing worthwhile. An investor who expects a smooth ride is, in effect, hoping for something markets have never provided.
The important distinction is between volatility and permanent loss. A diversified portfolio that falls in value during a downturn has not lost anything in a final sense. The loss only becomes real if you sell. Stay invested, and the holdings have the chance to recover as markets do over time. This is why time horizon matters more than almost any other factor: money you will not need for a decade can tolerate a great deal of short-term movement.
Why reacting usually costs more than the downturn
The hardest truth about volatility is that the most natural human response tends to be the wrong one. When prices fall, fear rises, and the instinct is to sell to stop the pain. When prices recover, the instinct is to wait until it feels safe, which usually means buying back at higher prices than you sold.
Selling during a decline creates two problems, not one. First, it converts a temporary, on-paper drop into a permanent, realized loss. Second, it forces you to make a second, equally difficult decision: when to get back in. Markets have often recovered quickly and without warning, and some of the strongest days have come close on the heels of the worst ones. An investor sitting in cash can easily miss that rebound.
The practical lesson is that discipline, not forecasting, is what protects long-term wealth. No one reliably predicts the bottom. A sound plan does not require you to.
What to actually do when markets fall
Doing very little is not the same as doing nothing thoughtfully. A short, deliberate review is worthwhile.
- Revisit your goals and time horizon. Has anything genuinely changed in your life, or only in the market? Decisions should follow changes in your circumstances, not in the headlines.
- Confirm your cash reserve. Money you need in the next year or two should not be invested in equities at all. If your near-term needs are covered by cash and safe holdings, the decline does not threaten your lifestyle.
- Keep contributing. Regular investing through a downturn means buying at lower prices. This is a feature of a steady plan, not a reason to pause it.
- Consider rebalancing. A decline can push your portfolio away from its target mix. Rebalancing restores it, which often means trimming what held up and adding to what fell.
- Turn down the noise. Checking a portfolio daily during volatility tends to increase anxiety and poor decisions without improving outcomes.
Keep a cash buffer so long-term money can ride it out
The single most effective defence against being forced to sell at the wrong time is a well-sized cash reserve. When short-term needs are funded separately, the invested portion of your wealth is free to behave like long-term money: it can fall, stay down for a while, and recover without ever being touched.
The table below illustrates how different pools of money should be treated. The figures are illustrative only and your own allocation depends on your situation.
| Money you need | Typical time frame | Where it generally belongs | How volatility should affect it |
|---|---|---|---|
| Emergency and spending reserve | 0–2 years | Cash, high-interest savings, short GICs | It should not be exposed to market swings at all |
| Medium-term goals | 2–5 years | More conservative mix | Modest exposure, smaller swings |
| Long-term and retirement capital | 5+ years | Diversified, growth-oriented mix | Expected to rise and fall; left to recover over time |
Building that reserve is a planning decision best made before a downturn, not during one. Our guide on the emergency fund and how much to hold walks through the first layer, and sequence of returns risk explains why the timing of market declines matters most for those drawing income in retirement.
Rebalancing: a disciplined way to act
For investors who feel they must do something, rebalancing offers a constructive outlet. Instead of abandoning the strategy, you enforce it. When equities fall, their weight in your portfolio shrinks below target; rebalancing means adding to them, which is a structured way of buying when prices are lower. When markets recover and equities grow beyond target, you trim them back.
This removes emotion from the decision. You are not guessing whether the market will rise or fall tomorrow; you are simply returning the portfolio to the risk level you chose in calmer times. Our overview of rebalancing your portfolio explains the mechanics and the common approaches.
Rebalancing also connects directly to your true risk tolerance. If a downturn is keeping you awake, the portfolio may have carried more risk than you can comfortably hold. That is worth revisiting, carefully, once markets are calm rather than in the middle of a decline.
When volatility should prompt a real change
There are legitimate reasons to adjust a portfolio during turbulent markets, but they almost always stem from your life rather than the market itself. A change in your time horizon, a new income need, a large upcoming expense or a genuine reassessment of how much risk you can live with can all justify a measured adjustment.
The key word is measured. A thoughtful change, made in consultation with your advisor and documented in your plan, is very different from an impulsive exit driven by fear. Our investment management approach is built to keep those decisions anchored to a written plan rather than to the mood of the day.
Why a written plan is your best defence
The reason a written plan helps so much during volatility is that it moves the important decisions to a calm moment, before the storm arrives. When you have already decided, in writing, how much to hold in cash, what your target allocation is, and the circumstances under which you would make a change, a falling market no longer demands an answer on the spot. It simply asks whether anything in your documented plan has actually changed.
Almost always, the honest answer is that only prices have changed, not your goals, your horizon or your needs. The plan then tells you what to do, which is usually to hold steady, keep contributing and perhaps rebalance. This is far easier than trying to reason clearly while watching your portfolio fall and headlines compete to alarm you.
A good plan also sets expectations in advance. If you have accepted, before investing, that temporary declines are the ordinary price of long-term growth, a downturn feels less like a crisis and more like the cost you already agreed to pay. The investors who weather volatility best are rarely the ones who predicted it. They are the ones who prepared for it, decided how they would respond while calm, and then had the discipline to follow their own instructions.
How Hayes Wealth Partners can help
Most of the value an advisor provides during a downturn is behavioural: a steady hand, a reminder of the plan, and a buffer between your money and your fear. We help Ottawa and Ontario families structure their cash reserves, set a portfolio they can actually hold through a full market cycle, and rebalance with discipline when others are reacting.
If recent volatility has you questioning your plan, that is exactly the moment to talk it through rather than act alone. Book a private consultation to review whether your portfolio and your reserves are positioned for the next rough patch before it arrives.
Frequently asked questions
Should I sell my investments when the market drops?
Generally no, if the money is meant for the long term and your plan has not changed. Selling during a decline locks in the loss and forces a second hard decision about when to buy back. Investors who stay invested through a full cycle have historically fared better than those who move to cash and try to time a return.
How long do market downturns usually last?
Every downturn is different and none can be predicted. Some corrections resolve within months while deeper declines can take longer to recover. Because the timing and depth vary, the practical response is to hold enough safe, accessible money that you are never forced to sell long-term investments at a bad time.
Is it a good idea to keep investing during volatility?
For most long-term investors, continuing to contribute on schedule is sensible because it means buying at lower prices during the decline. This is the logic behind regular, automated investing. Confirm the approach fits your circumstances with your advisor rather than trying to guess the bottom.