Market volatility is an unavoidable part of investing. Prices of shares, property, and other assets rise and fall based on economic conditions, investor sentiment, company earnings, and global events. For Australians, the last decade has seen several shocks—from the Global Financial Crisis aftermath to COVID-19 and ongoing global geopolitical uncertainty. Each period has reminded investors of the importance of preparation, discipline, and clear strategies.
This article explains practical tips for navigating a volatile investment market: understanding what volatility means, maintaining a long-term perspective, diversifying, reviewing your portfolio, avoiding emotional mistakes, applying dollar-cost averaging, ensuring you have an emergency fund, staying informed, consulting professionals, and resisting the urge to time the market.
1. Understanding a Volatile Investment Market
Volatility refers to the degree of variation in the price of an asset over time. The Australian Securities Exchange (ASX) and other global markets often measure this using standard deviation or volatility indexes. While short-term swings can be unsettling, volatility is a natural feature of markets.
For example, the ASX200 index lost 32% in the early months of the COVID-19 pandemic (Feb–Mar 2020) but recovered to reach new highs by 2021【1】. Investors who panicked and sold at the bottom often locked in losses, while those who understood volatility as temporary had the chance to recover.
Tip: Recognising that volatility is normal helps you approach investing with resilience.
2. Maintain a Long-Term Perspective
Investment returns unfold over decades, not days. Historically, Australian shares have provided average annual returns of around 9.8% since 1900, despite wars, recessions, and financial crises【2】.
Short-term drops may seem frightening, but investors focused on long-term goals—such as retirement or wealth accumulation—are less likely to overreact. A long-term view smooths out the noise and emphasises compounding growth.
Common mistake: Selling at the first sign of decline, which turns paper losses into real ones.
Tip: Revisit your investment goals regularly. Are you investing for the next 20 years or for next month? Align your response to volatility accordingly.
3. Diversification Matters
“Don’t put all your eggs in one basket” is more than a cliché—it’s a core principle of risk management. Diversification across asset classes (shares, bonds, property, cash) and within them (different sectors and regions) reduces reliance on any single investment.
Research by Vanguard Australia shows that a well-diversified portfolio can significantly reduce risk without sacrificing returns【3】. For instance, Australian shares fell sharply in 2008 during the GFC, but investors with exposure to bonds and international equities saw smaller losses.
Tip: Review whether your portfolio includes a healthy spread of assets to absorb shocks.
4. Review Your Portfolio Regularly
Volatility changes the weightings in your portfolio. A sudden drop in shares may mean bonds or cash now represent a larger share than intended. Portfolio reviews and rebalancing—bringing allocations back to target—help maintain your desired risk profile.
Morningstar research indicates that portfolios left unbalanced after a downturn can drift significantly from intended strategies, increasing risk exposure【4】.
Tip: Consider scheduling reviews annually or after major market events.
5. Avoid Emotional Decision-Making
Fear and greed are powerful forces. Behavioural finance research consistently shows that investors who make emotional decisions underperform those who stick to a plan. DALBAR’s 2023 Quantitative Analysis of Investor Behavior found that the average investor’s returns lagged the market because of poorly timed buy/sell decisions【5】.
Common mistake: Panic selling after a crash or chasing “hot” stocks after they have already risen.
Tip: Set clear rules for when you will act—such as rebalancing thresholds—rather than reacting emotionally.
6. Dollar-Cost Averaging (DCA)
Dollar-cost averaging means investing a fixed amount at regular intervals regardless of market conditions. This reduces the risk of investing a lump sum right before a downturn.
For example, an investor putting $500 into a superannuation investment every month buys more units when prices fall and fewer when they rise. Over time, this smooths entry costs.
Research from the Financial Services Council shows DCA can lower the impact of volatility and improve outcomes for everyday investors【6】.
Tip: Automated contributions to superannuation or managed funds make this strategy easy.
7. Build and Maintain an Emergency Fund
Volatile markets often coincide with broader economic stress—job losses, inflation spikes, or recessions. Without an emergency fund (typically 3–6 months of expenses), investors may be forced to sell assets at a loss to cover bills.
The Reserve Bank of Australia notes that households with higher savings buffers weather financial shocks more effectively【7】.
Tip: Keep your emergency fund in a safe, liquid account separate from investments.
8. Stay Informed—but Avoid Noise
Knowledge is power, but too much information can fuel anxiety. Following daily headlines often exaggerates volatility, making investors more likely to overreact.
Research by ASIC shows that retail investors who trade frequently based on short-term news often earn lower returns【8】. Balanced information from reliable financial sources is more helpful than following social media speculation.
Tip: Rely on professional updates and trusted financial publications instead of reacting to every headline.
9. Consult a Financial Professional
Financial advisers provide an external perspective, helping you stick to your goals when emotions run high. ASIC research found that Australians who seek advice are more likely to feel financially secure and avoid costly mistakes【9】.
Advisers can also tailor strategies—such as rebalancing, tax planning, or investment structuring—to your personal circumstances.
Tip: Consider advice as a long-term partnership rather than a one-off consultation.
10. Avoid Trying to Time the Market
The temptation to “buy low and sell high” is strong, but even professionals struggle to predict short-term movements. Missing just a few of the best-performing days can drastically reduce returns.
JP Morgan research shows that an investor who missed the 10 best days in the U.S. stock market between 2003 and 2022 cut their annualised return nearly in half【10】. Similar lessons apply in Australia.
Common mistake: Sitting on the sidelines waiting for the “perfect time” to re-enter.
Tip: Stick to your long-term plan rather than gambling on short-term moves.
Conclusion
Volatile markets can cause anxiety, but they don’t have to derail your investment journey. Understanding volatility, keeping a long-term view, diversifying, reviewing portfolios, and resisting emotional decisions are key foundations of resilience. Strategies such as dollar-cost averaging and maintaining an emergency fund provide further stability, while professional advice ensures your plan remains aligned with personal goals.
Ultimately, market turbulence is inevitable—but with preparation and discipline, investors can navigate uncertainty and emerge stronger.
References
- ASX, “ASX 200 Index Historical Data,” Australian Securities Exchange, 2020.
- Credit Suisse Research Institute, Global Investment Returns Yearbook 2023.
- Vanguard Australia, “The Case for Diversification,” Vanguard Research, 2022.
- Morningstar, “The Importance of Portfolio Rebalancing,” Morningstar Research, 2021.
- DALBAR, Quantitative Analysis of Investor Behavior 2023.
- Financial Services Council, “Dollar-Cost Averaging and Investment Outcomes,” FSC Report, 2021.
- Reserve Bank of Australia, “Household Finances – Savings and Buffers,” RBA Bulletin, 2022.
- Australian Securities and Investments Commission (ASIC), “Retail Investor Research Report,” ASIC, 2021.
- ASIC, “Financial Advice Benefits for Australians,” ASIC Consumer Research, 2020.
- JP Morgan Asset Management, Guide to the Markets – Q1 2023.
