EP Wealth's Bob McCarty, MBA, AAMS^® shares five strategies for preserving wealth during market volatility. Learn why the biggest threat during turbulent periods often isn't the market—it's behavior. 

Wealth Preservation Strategies During Market Volatility

When people talk about market risk, they're usually talking about volatility. While the two are related, they aren't the same thing. Volatility—the wild swings up or down—can be measured. Risk is more subjective and harder to pin down. It's shaped by emotion, by where someone is in life, by how a market drop feels relative to what they believe they need.

In my experience as a financial advisor, one of the most helpful things an investor can do during a turbulent period is take a breath, step back, and shift their view to the long term. When you're watching the market from a very near, intraday perspective, it looks like an EKG report—jagged and alarming. But when you step back to look at a quarter, a year, five years, the wild swings smooth out and the trend is (most times) moving gently up and to the right.

That shift in perspective is a crucial action for wealth preservation. It's the foundation for how I work with clients during volatile markets, and it informs every strategy I discuss in this blog—from managing emotional reactions to building a plan that's designed to weather turbulent stretches.

Risk Capacity vs. Risk Tolerance: Where Do You Stand?

I use a framework with my clients that I find helpful for thinking about risk in a more structured way. Picture a 2×2 grid. On one axis is capacity—how much risk someone can financially absorb, based on factors like the size of their portfolio and how long until they expect to need their assets. On the other axis is tolerance—how much risk they're emotionally comfortable with.

• Someone with high capacity and high tolerance is well-aligned. They have the resources to absorb market swings, and they're comfortable doing so.
• Someone with high capacity but low tolerance presents a different situation. They can afford the risk, but the experience of volatility causes real distress. That individual may benefit from coaching and conversation to help them understand what their financial picture actually supports.
• On the other end, someone with low capacity but high tolerance—limited assets but an appetite to take on significant risk—can be heading toward trouble if their comfort with volatility outpaces what their portfolio can actually absorb.

Risk Capacity vs. Risk Tolerance

Where a client sits on this grid isn't static. It's influenced by life stage and by personal history, including formative experiences that may go back decades.

I think about my own father in this context. He was a product of the Depression. He watched what happened to his father during that time, and it shaped his relationship with investing for the rest of his life. He was deeply skeptical of the stock market and wanted nothing to do with equities. He worked for General Motors, and the company gave him GM stock, but he didn't want it. Thankfully, he never sold it, and that stock eventually helped fund my mother's life after he passed. But his instinct, rooted in what he'd lived through, was to avoid the market entirely.

That kind of experience is more common than people might recognize. An advisor's role is to understand where a client sits on this grid—and what's driving their position—so they can make decisions from a grounded place rather than a reactive one.

5 Wealth Preservation Strategies for Volatile Markets

Market volatility tends to push investors toward one of two extremes: over-protecting (moving too much to cash and potentially missing a recovery) or over-exposing (ignoring real risks in pursuit of returns). The art of wealth preservation is managing that tension—protecting against downside without sacrificing long-term compounding.

The common thread running through the strategies below is an observation I come back to again and again: The biggest threat during volatility often isn't the market itself—it's behavior. It's how you react to the market.

1. Keep Emotions Out of Financial Decisions

One of the realities of being human is that emotions are real, and emotions can drive decisions that have negative consequences. During volatile periods, I often find myself acting as much as a psychologist as a financial advisor when working with clients. It’s my job to help them slow down and get to a place where they can think clearly before they make a move.

If you're feeling anxious about your portfolio, one of the most helpful things you can do is say it out loud—whether that's to your advisor, your spouse, or someone you trust. In my experience, when people put their fears into words, they often start to recognize that what they're feeling doesn't necessarily reflect what's actually happening with their finances.

The goal isn't to flip a switch. As I tell clients, it's more like a rheostat. You're gradually dialing down the intensity until you're in a position to make a more information-based decision.

One practical step that can help: shut the news off. Get off social media. Echo chambers are dangerous during volatile markets, because they tend to amplify anxiety rather than reduce it.

2. Avoid Succumbing to Panic

This is the most damaging mistake I see, and it's often the direct result of letting emotion drive the decision.

What tends to happen is a kind of recency bias. Investors watch the market drop sharply over a period of days or weeks, and they project that trajectory forward, as though the decline will continue indefinitely. That projection creates urgency to act, and selling locks in losses that might otherwise have been temporary.

I had a client whose situation illustrates this clearly. He was retired, had a well-balanced and diversified portfolio that we had constructed according to a long-term view, and was collecting Social Security and a pension. His lifestyle wasn't extravagant, but he had sufficient income to fund a really enjoyable life. When COVID hit, he panicked. We had many intense conversations where I walked through the long-term value of the portfolio, the plan we had built to fund his lifestyle for decades, and the negative consequences of acting from a place of panic. Despite all of that, he decided he had to get out. He sold, locked in losses of about $250,000, incurred capital gains taxes of nearly $20,000, and then watched the market rebound without him. That panicked reaction cost him close to $345,000.

Over the course of my investing lifetime, there have been roughly 10 events that felt like they could be catastrophic—1987, the early 1990s, 1998, the dot-com crash, the financial crisis, COVID, and more. Each time, the market recovered. Remembering that historical trend can be a valuable counterweight to the anxiety of the present moment.

3. Maintain a Cash Buffer — but Don't Overdo It

One way to think about wealth preservation during volatile periods is in terms of time horizons. Assets that will be needed in the very short term can be held in liquid instruments like money market funds, which act as a buffer against volatility and are intended to help avoid having to sell longer-term investments at an inopportune time.

Holding too large a share of your portfolio in cash or low-growth instruments creates its own problems, though. Inflation can erode the purchasing power of cash holdings over time, and sitting on the sidelines may mean missing the early stages of a recovery, which can account for a meaningful portion of long-term returns.

When a client is leaning toward moving heavily into cash, I walk them through the tradeoffs of staying invested versus pulling out. I show them where they are now, where I think they should be, and the pros and cons of each option, so we can make a rational decision together.

It’s important to remember that wealth preservation doesn't necessarily mean avoiding all losses. It's more about preserving capital for future needs and goals and defining it too narrowly is almost always a recipe for failure to grow.

4. Remember That Your Plan Was Built for Moments Like This

A well-constructed financial plan isn't designed only for favorable conditions. It's built to anticipate periods of volatility. That starts with diversification—spreading investments across asset classes so that a downturn in one area doesn't pull down the entire portfolio. It also means structuring the portfolio so that short-term needs are covered by more liquid, stable holdings while longer-term assets stay invested for growth. When turbulence arrives, that plan becomes your anchor.

During volatile stretches, I frequently hear some version of: "Yeah, but this time it's different." My response is the same each time: it's not. Some of the specifics may change, such as the presumed cause of the volatility or the sector that's most affected, but the basic pattern doesn't. And the plan already accounts for this.

During calmer periods, I check in with clients and ask a simple question: what's changed in your life? A new job, a child heading to college, a shift in retirement timing—any of these can affect whether the plan still fits. We adjust as needed, and we reaffirm together that the portfolio is set up to support what the client needs, including during periods when the market isn't cooperating.

If a client is feeling shaken when the market behaves chaotically, I can point back to those conversations. I remind them: we planned for growth, but we also planned for downturns. Your portfolio was built to hold up during moments just like this.

There's a Chinese proverb I share with clients: when you want shade, the best time to plant a tree is twenty years ago; the second-best time is right now. The same idea applies to financial planning. The conversations you have with your advisor during stable periods are what give that plan its power when volatility arrives. You're planting the tree so the shade is there when you need it.

5. Separate Financial Decisions from Politics

This one may surprise some readers, but it comes up often enough that I think it's worth addressing directly.

Over the course of the last several presidential elections, I've watched the same pattern repeat. If someone's preferred candidate loses, they feel the economy is heading for disaster and want to move to cash. If their candidate wins, everything looks like smooth sailing. In both cases, the emotional reaction can lead to decisions that don't necessarily serve the client's long-term interests.

I make a point of telling my clients that we're not going to have a political conversation, because political conversations don't really help. If you don't like what's happening politically, the conversation just encourages you to keep feeling badly. If you happen to agree with who's in office, it encourages overconfidence. Neither of those reactions is particularly helpful when you're talking about long-term financial health.

The markets don't care who's in the White House. Over time, they've continued on their own path through administrations of every stripe. Keeping that perspective can help clients avoid decisions driven by political emotion rather than financial fundamentals. 

The Value of Working with a Financial Advisor

People respond to market volatility in different ways and at different life stages—and not always in the ways you might expect. You might typically think that someone early in their career, with decades ahead of them, would be less rattled by a downturn than someone on the brink of retirement. But I've met just as many younger investors with intense volatility responses as retirees.

As life events accumulate—kids, paying for college, career changes—each new chapter brings a fresh set of financial concerns that a volatile market can intensify. What stays constant across all of these stages is the need for an advisor who knows your situation well enough to help you think clearly when the market is making that difficult.

We have over 100 years of market history to draw on, and one thing that history tells us clearly is that there will always be more volatility ahead. Taking the stance that it won't happen doesn't prevent the inevitable. Having a well-thought-out, solidly constructed plan in place, and an advisor who can help you stay grounded when things get turbulent, is what separates reacting to volatility from being prepared for it.

I also encourage clients to bring their families into these conversations when it makes sense. If your kids have questions, they're part of the family and we’re happy to talk to them. I think people don't talk about money enough. It's often treated like a taboo topic, right alongside religion and politics. But opening up financial conversations across generations can help family members at every life stage develop a healthier relationship with risk and with planning.

If you're navigating a volatile market and want to talk through how your financial plan is positioned—or if you'd like to take proactive steps to prepare for future turbulence—EP Wealth's financial advisors are here to help. Contact an advisor to start the conversation. 

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