The recent calm in equity markets may not last much longer, and advisors should be preparing clients for a potentially volatile fall.
The CBOE Volatility Index (VIX), Wall Street’s widely watched measure of fear, dipped to 14.22 on Friday—its lowest reading of the year. While a subdued VIX reflects investor confidence, history suggests it often precedes a period of sharp swings rather than sustained tranquility.
Despite record highs in the major indexes, investor sentiment is turning more cautious. Nearly 45% of U.S. investors reported a bearish outlook for the next six months in the latest survey from the American Association of Individual Investors, compared with just 33% in late July. The shift reflects mounting unease around stretched valuations, persistent inflationary pressures, and uncertainty from ongoing trade and tariff disputes.
For wealth advisors and RIAs, the challenge is not to react impulsively to the headlines or short-term sentiment shifts but to keep clients anchored to long-term strategy. Volatility is inevitable, but disciplined allocation and measured risk management remain the most effective tools for navigating it.
The dangers of market timing
Market pullbacks can feel like an invitation to sell early and sit on the sidelines until conditions improve. Yet the risks of mistiming those decisions are significant. A well-documented pattern shows that missing even a handful of the strongest recovery days can meaningfully drag down long-term returns.
Consider a recent example: in June 2023, Deutsche Bank analysts warned of a “near 100%” chance of a recession by year-end. Instead, the S&P 500 surged 13% over the following six months. Investors who exited on fear alone would have missed that entire rally.
A similar story played out earlier this year when fresh tariff announcements sparked an overnight plunge in equities. Many assumed the selloff would deepen into a prolonged bear market. Instead, markets quickly rebounded, and major indexes went on to set new highs. Those who sold into the panic not only locked in losses but also forfeited the opportunity to benefit from the subsequent upswing.
Positioning for what comes next
The lesson for advisors is clear: volatility should be expected and planned for, not feared. While it can feel counterintuitive, staying invested—albeit with careful attention to diversification and risk exposure—tends to serve clients better than attempting to sidestep downturns.
For clients anxious about near-term turbulence, advisors may want to review portfolio allocations to ensure appropriate balance between equities, fixed income, and alternatives. Building in resilience through high-quality bonds, dividend-paying equities, and exposure to defensive sectors can provide downside protection while maintaining participation in potential rebounds.
Cash management also matters. Keeping sufficient liquidity available for near-term needs reduces the temptation to liquidate long-term investments during drawdowns.
Finally, communication is key. Clients often react emotionally to market stress, and reassurance grounded in data and history can help prevent costly decisions. Reminding investors that downturns are part of the market cycle—and that recoveries often follow swiftly—can make the difference between locking in losses and achieving long-term goals.
As fall approaches, advisors should prepare for more turbulence ahead. The calm of summer trading may soon give way to sharper swings, but for disciplined investors guided by thoughtful planning, volatility represents a challenge to navigate rather than a reason to retreat.
