Notes on the economy: Navigating the cost of volatility

One of the most common questions I hear from clients is how to navigate market and economic volatility. I always start with a simple reminder: volatility is normal, so the goal isn’t to eliminate it. It’s to plan for it. When markets and the economy swing, volatility can affect borrowing costs, reshape returns and test an investor’s resolve.

Volatility has different types of costs. The obvious cost is a fluctuating investment balance. But there’s a hidden cost that can be harder to navigate. Big swings can tempt you to sell after a drop and wait too long to reinvest. Trying to time the market is dangerous, because to do it effectively, you have to be right not once but twice—knowing when to get out and when to get back in.

There’s plenty in the news and economic data to move markets these days. Inflation has stayed stubborn, around 3%, which keeps pressure on the Federal Reserve’s dual mandate for stable prices and full employment. When inflation cools slowly, interest rates can stay higher for longer, and that shows up in everyday places: credit cards, car loans and mortgage rates. Add in mixed signals on employment, plus geopolitical events that can jolt prices, and you have a murky economic picture and more frequent market “surprises.” If there’s one thing markets dislike, it’s uncertainty.

Volatility also can show up in the bond market. When interest rates move quickly, bond prices can move, too. When yields rise, investors generally want to be paid more for taking risks, and that can create an opportunity to lock in today’s higher interest rates for a longer period of time. With yields meaningfully higher than they were a few years ago, high-quality bonds can once again help manage volatility risk.

So, what’s my guidance? First, don’t be surprised by volatility. Take a breath and come back to your long-term strategy. Make sure your portfolio is appropriately diversified, so one part of the market doesn’t drive your entire strategy. Have some short-term savings, so you’re not forced to sell long-term investments at a bad time. Talk to your financial advisorabout rebalancing—trimming what’s grown and adding to what’s underweight—so your portfolio stays aligned with your goals.

Most of all, remember that volatility is part of investing. A good plan helps you ride out the bumps without locking in losses. If you’re unsure whether your mix still fits your timeline and comfort with risk, connect with a financial advisor. In choppy markets, steady guidance can make a real difference.

David Royal is executive vice president and chief financial & investment officer at Thrivent.