How to make rational investment decisions in a volatile market

The stock market's recent fluctuations may entice you to adjust your investment strategy.

On Thursday, stocks plummeted due to Russia's military invasion of Ukraine. President Biden has denounced the attack, stating that "the world holds Russia responsible."

Experts consistently advise against making investing decisions based on emotions.

Financial advisor Mitch Goldberg, president of ClientFirst Strategy in Melville, N.Y., stated that sudden declines and sharp rises in the stock market are a typical aspect of the investing process.

According to Goldberg, what matters most is what you do before taking a plunge, not the quick reactions you make during and after, when there's no time to think.

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Financial psychologist Dr. Brad Klontz, associate professor of practice in financial psychology and behavioral finance at Creighton University Heider College of Business, stated that while market experts didn't see evidence of panic in the market, it's normal for people to feel that way during heightened volatility.

He explained that the emotional brain is larger and more potent than the rational brain, which contributes to those emotions.

Go ahead and panic," Klonz said, "but don't panic about panicking.

It is important to recognize your emotions when it comes to the stock market, but to refrain from acting on them, whether it's selling during a decline or buying during an increase.

It may be easier to refrain from acting than to calm your emotional brain and make more rational decisions.

Remember the past

Remember that stock market dives are not unprecedented.

Goldberg stated that the stock market has surmounted numerous challenges, including 9/11, the Great Recession, and the 1987 market crash.

Each time the stock market recovered, it reached new heights.

Younger investors who have only experienced a bull market are more likely to become emotionally charged during periods of prolonged volatility, according to Klontz, who is also a certified financial planner.

“They never had this experience,” he said.

Take deep breaths

According to Klontz, a member of the CNBC Invest in You Financial Wellness Council, taking a few deep breaths can effectively alleviate the onset of panic.

According to wellness expert Deepak Chopra, practicing breathing exercises can lower your blood pressure, heart rate, and stress hormone levels.

Consult with an expert

Consulting with a financial expert not only helps you evaluate the accuracy of your thinking, but also provides you with something you need: time.

It's important to speak to someone before making an investment decision, even if you can't afford a financial advisor, as long as they are not also panicking.

By pausing before acting, you can give your rational brain time to make a good decision and calm down your emotional brain.

Seeking advice from an expert can help you reassess your investment strategy and determine your risk tolerance. It's possible that your portfolio lacks sufficient diversification.

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