Every Time the Market Drops, the Phone Rings

Every time the market drops, the phone rings. Every time it climbs, it goes quiet. That pattern tells me more about how a client thinks about risk than any questionnaire ever will. At Greenleaf Trust, the most important conversations we have with clients are not about performance or asset allocation. They are about risk. Specifically, what each client believes risk is, and whether that belief lines up with reality. Most investors picture market swings, worrying headlines and the uncomfortable feeling of watching an account balance bounce around. That is not risk. That is noise. And once you see the difference, the way you invest, and the way you sleep at night, changes.

What is the difference between volatility and actual investment risk?

When a market pulls back, it feels like something is breaking. Headlines call it risk. The industry assigns it a number and calls it risk. But volatility, the up and down movement of prices, is not the long-term danger we need to worry about. The true risk is permanent loss of capital, or worse, running out of money before you run out of life.

One is temporary and visible. The other is slow and quiet. An investment that drops 15% on its way to a 50% gain is not the same as one that drops 15% and never recovers. One is part of the ride. The other is what can keep you up at night.

When the market turns south, it’s natural to flinch. We know volatility is the cost of admission to higher returns, but in the moment, that knowledge disappears.

Whether volatility becomes a real problem depends on your situation. For the couple with decades ahead and no need to draw cash in the near term, a volatile holding is background noise. For the couple making withdrawals in the next three years, the same holding is a real threat to their financial plan.

I have worked through this exercise with clients for years, and one answer shows up more than any other. Given the choice, most people would accept being conservative and missing strong gains rather than being aggressive and living through a serious loss. They understand the trade-off. They prefer the path that keeps their blood pressure low. When they say that out loud, they make better decisions when markets get tested. The only mistake is pretending to be comfortable with a level of risk that does not match how you will react in a difficult moment.

Last year, I sat with a couple who had recently retired. Their portfolio had been built over decades and our planning covered their spending through every scenario we tested. During our early conversations together, they considered themselves as aggressive investors. “We can handle losses,” they said, with confidence. That spring, the market dropped. Not catastrophically. Just uncomfortably. They called me and asked if they should move “most of it” to cash until the dust settled. They were not anxious. They were calm. But the math they were describing was not the math of an aggressive investor. It was the math of someone protecting the first year of retirement they had ever lived through.

What this couple had checked on paper was a theory. What they were feeling in that moment was the cost of that theory. That gap became the entire conversation.

If we had done what they asked, they would have locked in a loss, missed the recovery that followed over the next few months and spent the next few years wondering whether they should get back in. If we had dismissed their feelings, they would have had trouble sleeping at night. Instead, we had a better idea. We moved enough to cover two years of spending into stable holdings, so the rest of the portfolio could stay invested without threatening their lifestyle. The market, the portfolio and the couple all recovered. What we adjusted was not the allocation. It was the distance between what they believed they could tolerate and what they actually could.

How do wealth advisors prevent emotional investing mistakes?

When markets feel uncertain, stepping aside and holding extra cash feels like the safe move. It removes the discomfort and gives you a sense of control. That sense of safety is an illusion.

Some cash belongs in every portfolio. Enough to cover near-term needs and weather a rough stretch without selling at the worst possible moment. Beyond that, cash creates a different problem. It quietly falls behind. Inflation at 3% cuts purchasing power by a quarter over a decade, whether the market is calm or chaotic.

Staying conservative protects you from short-term discomfort. It also caps what your portfolio can do for you over the next twenty or thirty years. The question is which trade you prefer to make, and whether you have lived with the consequences of that trade long enough to know.

When you move to the sidelines during a downturn, you take on a new job. You have to decide when to get back in. That job is nearly impossible to do well. Markets do their heaviest lifting in short, unpredictable windows. Miss a handful of those days in a decade, and your returns can get cut in half.

I have clients who tell me plainly that a conservative approach will cost them high returns in strong markets, and they accept that because knowing their plan will not blow up matters more to them than squeezing out the last point of growth. I have others who want every basis point, and who can live with the ride that comes with chasing it. Both answers are right.

Most of what happened on that call with our client was not portfolio management. It was conversation. Long before the phone rang, we had set aside the cash buffer within the portfolio. What the couple needed in that moment was someone on the other end of the line who would not reflect their fear back at them, someone who could remind them that a decision you make during a drawdown is almost never the decision you would make on a calm Sunday afternoon.

Every time the market drops, the phone still rings, but we have already done most of the work before it does. We model the spending, hold the cash, shape the portfolio and stay ready for all market environments. When the market tests your convictions, and it will more than once, the plan you built in advance is what answers for you.

What is the difference between market volatility and actual investment risk?

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Volatility is simply the temporary up-and-down movement of market prices. True investment risk is the permanent loss of capital, or running out of money during your lifetime. We focus on protecting you from the latter, keeping temporary drops from disrupting your future.

Why shouldn't I move my portfolio to cash until the market settles down?

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Moving to cash during a downturn feels safe, but it locks in losses and introduces a nearly impossible task: deciding when to get back in. Missing just a few of the market's best, unpredictable recovery days can cut your long-term returns in half while inflation quietly erodes your purchasing power.

Is it better to have a conservative or an aggressive portfolio strategy?

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Both paths can be correct. The only mistake is pretending to be comfortable with a level of risk that doesn't match how you will actually react in a difficult moment. We help you find the precise balance where your portfolio can achieve your goals while keeping your blood pressure low.