5 Smart Moves to Navigate Market Volatility

Everyone’s asking the same question – but most are focusing on the wrong answer.

The warning signs are everywhere: J.P. Morgan lowered recession probability but it’s still uncomfortably high, consumer sentiment has plummeted to five-year lows, and policy uncertainty around tariffs has businesses and investors on edge.

The reality? We’re in a period of heightened uncertainty where traditional economic models are struggling to provide clear guidance. Unlike previous economic cycles driven primarily by interest rates, inflation, or financial sector issues, the current uncertainty stems largely from policy decisions – specifically around trade and tariffs. This makes the current moment unique – and potentially more volatile than traditional economic cycles.

But here’s what smart investors understand: while recession risks may have indeed risen, panic selling isn’t the answer. The most successful investors prepare for uncertainty while staying focused on long-term strategy.

Here are five moves you can make today, regardless of whether a recession actually materializes.

5 Smart Moves for Market Volatility (Recession or Not)

Whether we enter a recession or not, these five strategies will position you to weather uncertainty and potentially benefit from market dislocations.

#1: Build Your Financial Foundation

The Strategy: Ensure you have adequate cash reserves before making any other moves.

Why It Matters: Cash reserves prevent forced selling during market downturns and provide flexibility during uncertain times.

Action Steps:

• Maintain 3-6 months of expenses in an emergency fund (6-12 months if you’re self-employed or retired)
• Keep funds for near-term expenses (next 1-2 years) in cash or other short-term instruments
• Consider building an “opportunity fund” – extra cash specifically for strategic deployment during market drops

Real-World Application: During the 2020 crash, investors with adequate cash reserves could avoid selling depressed investments while still meeting their financial obligations.

#2: Master Tax-Efficient Strategies

The Strategy: Turn market volatility into tax advantages through strategic moves.

Why It Matters: Market downturns create unique tax-planning opportunities that can significantly enhance long-term returns.

Action Steps:

• Tax-Loss Harvesting: Sell investments at a loss to offset capital gains and up to $3,000 of ordinary income annually
• Roth Conversions: Convert traditional retirement accounts to Roth IRAs when values are depressed, paying taxes at lower valuations
• Strategic Charitable Giving: Donate appreciated securities instead of cash to avoid capital gains tax while claiming full deductions

Example: A $100,000 traditional IRA that drops to $80,000 during a correction allows you to convert at a 20% discount. When markets recover, that $20,000 plus all future growth occurs in a tax-free environment.

#3: Deploy Cash Strategically (Don’t Try to Time the Bottom)

The Strategy: Use systematic deployment rather than attempting to time market bottoms.

Why It Matters: Missing just the 10 best market days over 20 years can cut returns nearly in half – and those best days often occur within weeks of the worst days.

Action Steps:

• Dollar-Cost Averaging: Deploy excess cash over a set period of time rather than all at once
• Predetermined Triggers: Set specific market drop levels (5%, 10%, 15%) that trigger additional investments
• Quality Focus: Target fundamentally strong companies trading at significant discounts during broad market selloffs

Real-World Example: Instead of investing $100,000 all at once, consider initially investing half and deploying the remaining $50,000 in $10,000 increments over the following 5 months. This reduces timing risk while still capturing market opportunities.

#4: Adjust Your Portfolio Without Abandoning Growth

The Strategy: Make tactical adjustments that manage risk while maintaining long-term growth potential.

Why It Matters: Simply moving to cash or ultra-conservative investments can significantly impair long-term wealth building.

Smart Adjustments:

• Quality Bias: Shift toward companies with strong balance sheets, consistent cash flows, and competitive advantages
• Defensive Factors: Consider investments in less volatile, higher quality dividend producing equities
• Alternative Diversifiers: Small allocations to alternative investments such as managed futures, market-neutral strategies, or select commodities can improve your portfolio’s overall diversification
• Geographic Diversification: Ensure adequate international exposure to reduce dependence on U.S. policy decisions

#5: Focus on What You Can Control

The Strategy: Channel energy into actionable steps rather than trying to predict unpredictable outcomes.

Why It Matters: Policy uncertainty and recession predictions are largely outside your control, but your response to them isn’t.

Controllable Factors:

• Regular Rebalancing: Maintain your target asset allocation through systematic rebalancing
• Contribution Consistency: Continue regular contributions to retirement accounts regardless of market conditions
• Plan Review: Ensure your investment strategy still aligns with your risk tolerance and timeline
• Behavioral Discipline: Stick to your long-term strategy rather than making emotional decisions

The Warren Buffett Principle: Remember that “your portfolio is like a bar of soap – the more you touch it, the smaller it gets.” Avoid obsessive monitoring and knee-jerk reactions.

The Bottom Line: Prepare, Don’t Panic

It’s completely normal to feel anxious about recession headlines and market uncertainty. These are natural human responses to financial threats. However, while recession risks may have indeed increased, the appropriate response isn’t panic but preparation.

The Most Important Point: Whether we enter a recession in 2025 or not, the investors who will be best positioned for long-term success are those who maintain discipline, stay diversified, and avoid making permanent decisions based on temporary market conditions.

Remember, the goal isn’t to predict the future perfectly – it’s to build a portfolio and strategy robust enough to succeed across various economic scenarios. By implementing these five smart moves, you’ll be prepared for whatever 2025 brings, recession or not.

Your Next Steps

Ready to put these strategies into action? Join our free webinar “Market Volatility: Smart Moves for Shaky Times” on June 12th at 7pm EST.

We’ll dive deeper into these five strategies (and more), share real-world examples, and answer your toughest questions in our live Q&A session.