How to Think About Market Risk

July 29, 2025

When markets dip, it’s natural to feel uneasy. Whether it’s a sudden sell-off or a slow, persistent decline, the uncertainty can make even the most seasoned investors second-guess their strategy. You might wonder: Should I pull out of the market? Are my investments too risky?

Before you make any quick decisions, it’s important to understand what not to do: try to time the market. Jumping in and out based on short-term moves is notoriously difficult and rarely successful. Most people who attempt market timing end up missing the recovery and locking in losses instead of gains.

A better approach? Stick to a long-term financial plan that’s designed around your goals, timeline, and comfort with risk. Still, that doesn’t mean your portfolio should stay the same forever. There are times when it’s smart to review and possibly reduce your exposure to risk—especially when your personal circumstances change.

1. It’s Been a While Since You Revisited Your Investment Mix

If you haven’t checked in on your portfolio lately, you may be taking on more risk than you realize. Over time, even a well-diversified investment strategy can drift from its original allocation due to market performance. Stocks may have grown faster than bonds, shifting your mix to something more aggressive than you intended.

Your timeline also matters. If you're now closer to a financial goal—like retirement, sending a child to college, or buying a home—you may no longer have the luxury of time to ride out a market downturn. In that case, reducing your exposure to stocks and increasing your holdings in more stable assets like bonds or cash equivalents may be wise.

Ideally, you should review your investment plan at least once a year. This isn’t about reacting to the latest headlines—it's about making sure your plan still fits your life. Life changes, and your strategy should evolve with it.

2. A Major Life Change Has Altered Your Financial Picture

Whether it’s a new baby, a job loss, a move, a divorce, or an unexpected health expense, big life events can impact both your ability and willingness to take on investment risk.

Your risk capacity—meaning your financial ability to absorb losses—may decrease if your income drops or your expenses rise. And if you suddenly need to tap into your investments for emergency expenses, it’s better if that money isn’t sitting in a volatile stock fund.

Legendary investor Peter Lynch famously said, “If you need the money in less than three years, it shouldn’t be in stocks.” That advice still holds. When life changes, check in with your investment strategy to make sure it still fits your current needs—not just your long-term goals.

3. Your Comfort with Risk Has Changed

Your emotional response to market volatility is just as important as the numbers in your portfolio. If you're losing sleep over downturns or constantly checking your account during market turbulence, that could be a sign your investments are too aggressive for your current mindset.

Some investors feel confident weathering a 20% drop when retirement is decades away—but that same drop feels devastating when retirement is around the corner. As you get older or your financial goals come into focus, your tolerance for ups and downs may shift.

It’s okay to adjust. You don’t have to eliminate all growth potential, but you can fine-tune your mix to balance stability and opportunity. Reducing your equity exposure might mean missing out on some gains during a recovery—but it also lowers the risk of steep losses when you need your money most.

Don’t React—Reassess

Volatility can be unsettling, but it doesn’t have to derail your plans. Instead of responding to each market move, use these moments as reminders to reassess your financial plan. If your time horizon, financial circumstances, or risk tolerance have changed, your investment strategy should reflect that.

But don’t make changes just for the sake of reacting to noise in the headlines. Stay focused on what matters—your long-term goals—and make adjustments only when your life changes, not just the market.

Sources:

https://www.fidelity.com/learning-center/trading-investing/rethinking-risk

Disclosure:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

This material is provided as a courtesy and for educational purposes only.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.