For those of you who have taken a cruise recently, you’ll likely remember one of the first things you do before leaving port. Once you’ve settled into your room, walked around the ship and enjoyed a welcome cocktail, you’ll hear an announcement about lifeboat drills. These drills provide you with the protocol to follow in the case the unexpected happens and you need to evacuate the ship. Similarly, in the financial world, preparation is crucial for managing market volatility.

Just as a ship can encounter rough seas without warning, the stock market can experience sudden downturns due to economic shifts, geopolitical tensions, or unexpected events. This type of volatility is inevitable over the short term, as is the potential for market draw downs. We don’t always know why or when these will happen, but we do know that at some point, odds are that we will see a market drawdown of some significance at some point in the year ahead. In fact, history shows that 56% of the time the drawdown is in the 10% range.

Lifeboat drills also teach the importance of remaining calm under pressure. In the midst of a financial crisis, emotions can run high, leading to impulsive decisions that may exacerbate losses. Just as drill participants are trained to follow procedures even in stressful situations, investors must learn to stick to their well-thought-out strategies. This discipline can help prevent rash decisions that stem from fear or uncertainty and help us to focus on long term results as opposed to short term noise.

Sticking with the plan, and following an established process helps us weather the storm and allows us to navigate market volatility with greater success and better results for our clients.

Joseph Wu from our Portfolio Advisory Group recently published an article on this topic if you’d like to learn more.