Instead of Timing the Market, Do This: Pfau, Murguia

“While headlines may latch onto the ‘fear index’ to generate buzz, it’s fundamental to remember that volatility isn’t inherently negative,” Murguia stressed. “It’s simply the market responding to new information, and these fluctuations are a normal part of investing.”

As clients near the end of their accumulation journey, approaching retirement, they need to remain committed to the long-term plan, the duo said. Selling out of the market will lock in a big loss and increase the likelihood of missing out on positive swings that historically arrive hot on the heels of the worst sessions.

Advisors don’t have much power to change human nature, Pfau and Murguia agreed, but they can (and should) prioritize reeducating clients about the dangers of market timing. It’s also worth the effort to put the latest bout of turmoil into context — one in which markets have gained far more than they have lost.

Four Volatility Factors at Play

As Pfau and Murguia noted, the Trump administration’s aggressive tariff agenda is getting most of the attention, but there’s a lot more at play in the market’s big moves.

“Right now, the market is trying to digest a lot at once,” Murguia said. “Economic signals are mixed, creating a sense of unease that is manifesting in the daily market swings. Four key drivers have been making headlines.”

One is tariffs, as government-imposed taxes on imported and exported goods are set to potentially disrupt global trade patterns. While designed to regulate trade balances, the experts observed, tariffs often result in increased costs for consumers as companies pass the burden along.

The second factor has been in play for several years but seems to have faded in the minds of many clients: lingering inflation. Inflation rates have cooled yet remain elevated compared to historical norms, the duo explained, and the Federal Reserve has remained steadfast in decisionmaking on interest rates.

“Sticky inflation impacts everything from grocery store prices to housing costs, creating uncertainty for both businesses and households,” Murguia said. “The Federal Reserve continues to balance this issue through monetary policy, which also adds to the uncertainty.”

The third factor that clients should understand is the explosive growth of the technology sector, led by the so-called “Magnificent Seven.” Because tech companies comprise a significant portion of major indices, their performance can skew overall market trends — up and down.

This is a prime example of the loss-aversion tendency, according to Pfau and Murguia, as few investors paused to question the rise of some tech stocks in recent years. Yet, even though the Nasdaq remains up about 45% since the end of 2023, the drop from the latest high is causing a lot of consternation.

Finally, investors should understand the role of government spending in market valuations.

“Budget cuts and reduced government spending introduce another layer of unpredictability,” Murguia said. “These shifts can trickle down to local economies, affecting employment rates, consumer spending, and even housing markets.”

When it comes to clients’ tendency to want to sit out the volatility, Pfau and Murguia observed, the problem is less with the decision to sell and more with the difficulty of knowing when to buy back in.

“Missing the top-performing days while trying to avoid losses can devastate what might have been long-term growth,” Murguia said. “If you missed just the 10 best market days in the past 20 years, your overall returns could be cut in half.”

What Investors Can Do Now

Additionally, Pfau emphasized, attempting to predict market movements amplifies emotional decision-making. Instead, clients should focus on staying the course to give investments the time they need to grow.

For clients who expected to retire this year, it probably makes more sense to adjust the timing of retirement or to reduce their anticipated spending level than it does to dramatically adjust their portfolio. Ideally, these clients will already have an income protection strategy via bucketing or the purchase of guaranteed income.

For people in the middle of their careers and only starting to think more seriously about retirement, this moment inspires purposeful self-reflection, with such tools as the duo’s Retirement Income Style Awareness framework.

“This is a great time to revisit one’s anticipated retirement income strategy and make sure it still reflects their comfort level and goals,” Murguia said. “This approach helps clients build a plan that aligns with how they naturally think about retirement income, making it easier to stick to their goals during volatile times. That way, when the market feels shaky, your plan still feels solid because it’s built around you, not short-term market trends.”

Pictured: Wade Pfau