When the stock market drops, the instinct is to act: sell before things get worse, sit in cash until conditions stabilize, and buy back in when the dust settles. It feels logical, but it almost never works out that way.
Over the years, we’ve seen this pattern repeat across a variety of investors. They might have had solid savings, a long runway to retirement, and the discipline to contribute consistently. But when things got volatile, they panicked. They sold late and only got back in after most of the gains had already passed.
The Cost of Reacting
These patterns show up in the data, too. DALBAR has tracked the gap between market returns and what investors actually earn for decades. The numbers are consistent: investors who reacted to market conditions accumulated roughly 22% less total wealth over a 20-year period than those who simply held their position.1 The shortfall traces back to the moves made when markets got rough.
Why Knowing Better Isn’t Enough
The investors in the DALBAR data who underperformed the market weren’t, on the whole, people who ignored financial fundamentals. Many of them knew the standard advice: stay the course and let the market recover. What they couldn’t overcome was the feeling, in a moment of genuine volatility, that doing nothing was the same as being reckless. A falling market generates more engagement than a stable one, and the gnawing sense that “this time it’s different” can be hard to ignore when your own savings are on the line.
Is a Financial Advisor Worth It?
Most people evaluate a financial advisor on their portfolio recommendations, investment performance, or market insights. Those things matter, but they’re not where the return on a good advisor relationship tends to show up. The real value is when a client wants to act and their advisor gently reminds them to slow down and think through whether they should.
In every significant downturn we’ve seen, the clients who came out whole were the ones who stayed calm and stuck to the plan. Knowing what to do when the stock market drops, it turns out, isn’t really about doing anything. It’s about having someone who helps you hold to your plan when holding feels hardest.