Morgan Stanley
  • Wealth Management
  • Jun 12, 2024

How to Plan Instead of Panic in Volatile Markets

How do you weather a market crash? A study of nearly 120,000 investors reveals the value of having a sound financial plan to help keep you on track.


If you look at the value of most financial markets over the last few decades, you’ll see they have grown dramatically. However, if you look more closely, you’ll see they have grown in a series of peaks and valleys—not in a straight line. Some weeks, months or even years, investors will almost certainly experience losses in their investment portfolio.

Of course, it’s one thing to know that markets fluctuate. It’s quite another when the market drops and seems to take your portfolio with it—along with your plans for retirement, a down payment on a home, a loved one’s education, your estate or any other major financial goals you may have.

In those situations, it can be tempting to sell investments in a panic, at deeply discounted prices, and keep your money on the sidelines as you wait for markets to recover. However, such decisions may significantly impair your portfolio, making it harder to achieve your goals.

A thoughtful financial plan can serve as your ‘north star’ in volatile markets, helping you stay focused on what matters in the long run.

To understand why, consider a hypothetical investor nearing retirement, who sold out of the market about four months before the low point of the 2008 financial crisis, when their portfolio’s value had declined nearly 14%. If the investor then stayed entirely in cash for one year, they would have missed out on the market’s subsequent recovery and roughly 17% of portfolio gains1—resulting in significantly less wealth for retirement and potentially requiring them to substantially reduce their spending for decades.

The best way to stay on track and avoid this kind of panicked selling is with a thoughtful financial plan. By outlining your goals, strategy and contingency options, a professionally developed plan can serve as your “north star” in volatile markets, helping you stay focused on what matters in the long run, instead of the latest headlines. 

On-Track Investors Tend to Stay on Track

This conclusion isn’t just conventional investing wisdom; it’s borne out by real-world data. Morgan Stanley Wealth Management’s Global Investment Office analyzed how nearly 120,000 investors with a Morgan Stanley financial plan fared before, during and after the 2020 COVID market crash, during which the U.S. stock market plunged 34% in just 33 days.

We found that at the market’s peak, 93% of the investors were considered “on track”2 to achieve their stated financial goals, according to Morgan Stanley Wealth Management’s proprietary financial planning tools. And impressively, more than three-quarters of these on-track investors remained on track when the market troughed, before stocks began to bounce back.3

Indeed, even when portfolios declined, investors who were already on track before the crash tended to stay on track to achieve their financial goals. Case in point: Despite a portfolio decline of 16% for the typical investor in this group, their likelihood of achieving their goals was down just 2% at the market’s low point. 

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Time Matters

Keep in mind that not all investors have enough time to make up losses. For example, if you are already well into retirement when market volatility hits, you are probably relying on your savings for ongoing expenses. You might not have the time required for the market to fully recover.

In such circumstances, having a financial plan and keeping up with it is critical. Our analysis of the 2020 market crash found that the typical investor in mid- to late-retirement had zero change in their probability of achieving their goals at the equity market’s low point, if they were on track in their financial plan before the market declined.

However, for investors whose plans were “at risk”2 before the decline—whether because they set highly ambitious income goals or because an unexpected life event temporarily knocked them off course—the consequences were severe: The typical impact of market turmoil on their likelihood of success was a distressing 33% decline. 

Note: See Appendix for full methodological notes.
Source: Morgan Stanley Wealth Management Investment Platforms, Morgan Stanley Wealth Management Global Investment Office

How to Get Back on Track

Your financial plan is key to helping you achieve your goals, especially if your progress has been temporarily knocked off pace due to a market drop.

Sometimes, as with the COVID crash, all it takes is time: The market was up more than 16% by the end of 2020, nearly 70% higher than the March 2020 low.

For those who do risk falling off track, simple steps, such as modestly increasing your savings rate, slightly reducing your spending plans or delaying when you access funds—or some combination of these strategies—can help you get back on track without being tempted to sell portfolio assets at a loss. Even just postponing big discretionary spending decisions until markets recover can make a big difference.

Three hypothetical examples show the power of relatively modest adjustments in a financial plan:

  • A mid-career couple in their mid-30s might see their equity-heavy portfolio’s value drop 20% during a market drawdown, leaving their plan “at risk.” To get back on track toward their retirement income goals, they could either delay retirement by just 7.5 months or, alternatively, increase their savings by less than 1% of their salary and decrease their spending goal by just 1.4%.
  • A late-career couple in their mid-50s would have less time to make up the gap, but could still take some simple remedial steps. If they experienced a 15% portfolio decline, for instance, they could get back on track by extending their careers by nine months or by increasing savings by about 3% of salary per month while decreasing their spending goal by about 2%.
  • An already-retired couple in their 70s with a well-funded plan has fewer options, since they are already taking money from their retirement account. That said, retirees often have a more realistic view of their actual retirement spending needs compared to their original goals and, as such, find they can still enjoy their desired lifestyle on less than the lofty income goals of younger, aspirational investors. If this hypothetical couple’s portfolio takes a 6% hit, they would still be comfortably on track. Nevertheless, cutting spending by 1.9% would get them back to their original funding level.

The best news: For all of these investors, a rapid market rebound that helps their portfolios recover may even render such plan adjustments, made at the trough of the market, unnecessary. 

Build Your Financial Plan

As these examples show, investing is a lifelong journey with few guarantees. In fact, one of the few certainties is that your investment portfolio will have highs and lows throughout your life. The key to successfully arriving at your intended financial destination is by charting a course that makes the most sense for you and staying true to it, even when market turmoil abounds—in other words, by making a financial plan.

With Morgan Stanley’s Goals Planning System and other innovative planning tools, your Morgan Stanley Financial Advisor can help you quantify your investment goals based on what matters most to you, then design and implement an effective strategy that accounts for your desired level of risk and potential return, and help you keep track of your progress.

Connect with your Morgan Stanley Financial Advisor to see how you are pacing toward your goals and explore what you can do to stay on track. To learn more, ask your advisor for a copy of the Global Investment Committee report, Plan Not to Panic: Navigating Market Volatility with Financial Planning.

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