Do This With Your Money During a Volatile Market

By Ellevest Team

When it comes to the economy, no one ever wants to hear that big, bad word: recession. It’s only natural to worry about the financial future, especially during a volatile market — and to search for something to do about all of it. While the fundamentals of smart money management don’t change during tough economic times (or, *gulp*, recessions), there are a few things you might do to fortify your finances and help you feel a little more in control.

A woman contemplating a downward-trending stock market graph, with a calculator and pie chart floating nearby. Illustration.

Here’s our best advice on how to manage your money when the economy is volatile.

How to adjust your spending during a volatile market

This is probably the first thing you think of when you’re concerned about economic volatility. Whether bear markets, potential layoffs, or a full-blown recession is on your mind, now might be the time to start scaling back on unnecessary spending — just in case. How much or how fast you do it will depend on your situation. 

If you think your income is at risk, you might want to start making more drastic cuts to your spending ASAP and adopt an essentials-only budget for the near future. In addition to pausing or canceling things you can live without for now, review your fixed costs and see if they’re all as low as you can get them. For example, you might call your cell phone or internet providers to negotiate lower contracts. It’s also probably not a good time to make upgrades to a more expensive apartment or newer car. Should things take an even more serious turn, fixed costs are the hardest to cut out or trim down. Streamlining them is the best way to keep your budget as flexible as possible, even in hard times.

If your income seems to be in a good place ahead of tough economic times, it’s still not a bad idea to “scale back” your spending. That might mean you regularly start to practice intentional spending, making small yet meaningful trade-offs here and there. Or, you might identify or update your core values using the Ellevest Core Values Worksheet (free for Ellevest clients) to build a financial foundation strong enough to cope with economic volatility. Don’t feel like you need to cut all the way back to rice and beans unless it’s absolutely necessary, though — there’s a difference between budgeting smart and budgeting so hard you feel miserable, burn out, and end up chucking the budget out the window.

With that extra room you’ve carved out of your budget, you’ve got two next steps: paying down as much credit card debt as you can to avoid those high interest rates and/or squirreling away a bit more savings than usual.

How to adjust your savings during a volatile market

If you’re new around here, you should know at Ellevest, we’re big fans of emergency funds. As in, you should have one, volatile market or not. Our general suggestion is to save three to six months’ worth of take-home pay — maybe even more like nine if you’re self-employed. The more uncertainty you’ve got in your financial life, the bigger you’re going to want your emergency fund to be.

We recognize that can be a huge (anxiety-inducing) chunk of change. So if you’re just starting, aim to save one month’s worth of take-home pay — if you’re paid biweekly, that’s just two paychecks’ worth. Then keep going until you have that full rainy day fund built up. 

If you already have an emergency fund squared away, first of all: Nice! Now think: Is the amount you’ve saved enough to make you feel secure in tough economic times? If not, save more. To get clear on just how much extra you should save, here’s help thinking through what might qualify as a financial emergency.

Then there’s the question of where to save. The bad news first: Inflation essentially cancels out (or swallows) any interest you may accrue on a savings account balance — in fact, you’re likely losing purchasing power on any funds you keep in cash. Still, for emergency funds, the priority is to have cash there for you when you need it, not to maximize interest. Look for the highest interest rate available, and no matter what, we strongly recommend using an FDIC- or NCUA-insured savings account.

Beyond the money you’ll need to pay your bills and your emergency fund, you should also use a savings account for money you think you might need in the next two years. Otherwise, our general advice is to minimize the amount of excess liquid cash you have on hand — anything further out than two years can be invested (for that advice, keep reading). 

How to adjust your investing (or not!) during a volatile market

Unless you cannot pay your bills or need to use the money within two years, Do. Not. Pull. Your. Money. Out. Even during economic volatility. Here’s why: Any investment you think you’ve “lost” isn’t permanently lost until you sell that asset (aka “realize” the loss). Same goes for moving your money out of stocks and into a different type of investment.

If you leave your money where it is, you still can recover if the market goes back up (which it’s done, eventually, in the past). But if you take it out? Bye-bye, possible future gains. The key thing to remember is that your investment account “balance” is really just a record of the changing prices of what you have, should you choose to sell (withdraw) right now. But those prices change all the time — and historically, the stock market has averaged 10% gains since 1928. 

Another thing to consider, specifically about your retirement accounts: If you withdraw money before age 59½, you’ll be subject to a ton of penalties — it’ll be counted as income when tax time rolls around, plus it’ll come with a 10% additional penalty for early withdrawal. That could mean you’re paying as much as half of your account value in taxes alone.

That’s why our best advice throughout periods of economic volatility — yes, even recessions — is to trust the process and keep investing. Especially for retirement. Don’t try to time the market — there’s no way to know if we’ve hit the bottom until we’re already past it! Plus, when markets are down, you might hear people refer to stocks as being “on sale” because prices are low. (Yes, as in, “buy low, sell high.”) That said, if you need to slow down your deposits for disposable income reasons, it may make sense to take a look at your money roadmap and adjust your investing goals a bit, if possible.

If you have a large lump sum that you can do without for two or more years, investing it might be the way to go. But again, there’s simply no way to know what'll happen next in the markets. If you’re nervous, or if markets are simply too volatile, dollar-cost averaging — that is, investing consistent amounts of money over consistent intervals of time — is one strategy you might opt for to help manage that risk. 

Finally, the smartest kind of investing, in our opinion, is portfolio diversification — spreading your investments across multiple asset classes to mitigate risk. What affects one part of the market(s) may not affect the others (or at least, not as much), and diversification ensures that you’re not betting everything on one proverbial horse. A good investment advisor — cough, like Ellevest, cough — will do this for you.

Your volatile market mantra: Stay steady, stay ready

Uncertain economic times often create even more volatility, be it on a market level (see: when everyone panics and sells, causing markets to dip) or an individual level (see: when you buy $250 worth of groceries to “hunker down” through a storm that lasts exactly one day — and can’t afford those concert tickets later that month). That’s a key thing to keep in mind as the economic waves get choppier out here is that panicking about economic volatility can make things a lot worse.

So let us stress once more, with feeling: No one knows for sure what'll happen in the future. And if things feel rocky, panicking will only make it worse. Stick to your smart money moves, and take comfort in the fact that you’re doing everything in your power to stay afloat during uncertain economic times. We see you — you got this.


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Ellevest Team

Ellevest helps women build and manage their wealth through goal-based investing, financial planning, and wealth management. Our mission is to get more money in the hands of women.