Tips for Responding to a Chaotic U.S. Market

Market volatility has many investors wondering whether it's time to reconsider their allocations—among asset classes and even between domestic and international. We asked a Schwab expert and two financial consultants to share their most frequently heard concerns—and their tips for addressing them.

"Many clients are worried about U.S. stocks right now," says Barry Kaiman, a senior regional manager at Schwab Wealth Advisory. "The news is relentless, and it's difficult to feel confident in your portfolio when its value is bouncing around like it has this year.

"But it's important to look at the whole picture—not just the headlines. The stock market frequently hits new highs, and the major economic signals suggest the U.S. is still in growth mode. For some, that's an argument for broad U.S. equity exposure, although it's wise to avoid overconcentration in any one stock, sector, or country."

"I think most U.S. investors could probably stand to increase their international allocations—not in response to the current environment, but because they're likely overexposed to the U.S.," says Omar Aguilar, CEO and CIO of Schwab Asset Management^®. "After more than a decade of exceptional U.S. stock performance, many clients' international allocations have shrunk to less than 10% of their portfolios. That's all well and good when the U.S. is outperforming, but as we've seen, that outperformance can't last forever."

"There's a huge bias toward U.S. stocks, especially since the financial crisis in 2008—when the S&P 500^® Index just grew and grew. Before then, investors were accustomed to more international exposure than many have now," says Stuart Barnett, CFP^®, CWS^®, a senior financial consultant at Schwab. "It's important to remember how quickly things can change. If there's a big downward move in your portfolio, being diversified could help shorten the amount of time it takes to recover."

"The problem with pulling your money out of the market is that the worst is likely behind you by the time you've decided to act, so you're just locking in losses and potentially missing out on the rebound," Omar says. "This spring was a perfect example: If you sold in early April when the market was down, you likely missed the recovery that happened almost immediately thereafter. Our research shows that investors who stay in the market nearly always come out ahead."

"Pulling a significant amount of money out of the market in response to volatility is a dramatic move, and before you consider something that drastic, it helps to outline your reasoning," Barry adds. "That can go a long way toward determining whether such a move is in line with your overall plan or potentially counterproductive—even in the near term, given how quickly markets have rebounded of late."

"To echo and elaborate on Barry's comment, it helps to bring your focus back to your plan," Stuart says. "There are going to be good and bad years, and the financial plans we create for clients account for that. We're typically only expecting 5% to 7% average annual returns over the long term, so after 20%-plus returns from the S&P 500 in 2023 and 2024, there are bound to be some rough stretches. If you stick to your plan, year-to-year market performance shouldn't matter that much—even if it doesn't always feel that way.

"In those moments, the best thing you can do is call your advisor. I can't tell you how many times I've had clients call in a panic after seeing their portfolios drop 5% or 10%. They're afraid, and they just want that feeling to go away. But when we talk it through—what they own, why they own it, what their goals are—it usually becomes clear that their plan is still solid. They just need that extra level of reassurance, which is what we're here for."

"And remember: Doing nothing is doing something," Barry adds. "In fact, sometimes it's the smartest move you can make."