How to Explain Volatility to Nervous Clients

The call comes in at 10:47 AM. The market is down 3%. Your client saw their portfolio value drop $200,000 since yesterday. They are not calling to chat about asset allocation theory. They are calling because they are scared, and they want to know what you are going to do about it.

How you handle this conversation matters more than your stock selection. A client who panics and moves to cash at the wrong time costs themselves more than any bad investment decision you could make. Your job in that moment is not to predict the market bottom or justify your positions. Your job is to provide clarity and confidence so they can stay the course when their instincts tell them to flee.

After two decades of these conversations—through the 2008 financial crisis, the 2020 Covid crash, and countless corrections in between—we have learned what actually works. Not elegant theory. Not academic studies. Scripts and frameworks that keep clients rational when markets are not.

The Problem With Standard Explanations

Most advisers reach for the same responses: "Markets go up and down." "This is normal volatility." "Historically, markets recover." "You're a long-term investor."

These responses are true. They are also useless.

When a client sees six figures disappear overnight, "markets go up and down" sounds dismissive. When their neighbor is bragging about moving to cash last week, "historically markets recover" sounds like faith-based nonsense. When they are imagining their retirement evaporating, "you're a long-term investor" sounds like you do not care about their immediate distress.

The problem is not that these explanations are wrong. The problem is that they address the wrong question. Your client is not calling to understand market history. They are calling because they feel out of control, and they want to regain control by doing something. Your job is to redirect that impulse toward rational action rather than panic-driven mistakes.

Temporary Decline vs Permanent Loss

The single most effective reframing we have found is the distinction between temporary decline and permanent loss. This is not semantic games. This is the difference between a portfolio that recovers and a portfolio that locks in catastrophic damage.

We explain it this way: "Right now, your portfolio is down $200,000 from its peak. That decline is temporary—the value has dropped, but you still own the same businesses. Those businesses are still generating revenue, serving customers, and compounding value. The price has declined. The value has not disappeared. If you sell now, you convert that temporary decline into a permanent loss. You would sell businesses at depressed prices and miss the recovery."

Then we get specific. We walk through their largest positions. "You own 500 shares of Microsoft. Yesterday each share was worth $420. Today it is $405. But Microsoft did not suddenly become a worse business overnight. They did not lose Azure customers. They did not shut down their cloud division. The price declined because the entire market declined. The business is the same. If you sell now, you trade your ownership in that business for cash that will sit idle while the market recovers."

This reframing works because it shifts the conversation from "my portfolio is down" to "do I still believe in these businesses?" That is a question you can address with evidence and analysis. The first question leads to panic. The second leads to rational evaluation.

The Opportunity Cost Framework

Volatility creates fear. But volatility also creates opportunity. The challenge is helping clients see the opportunity without sounding callous about their losses.

We frame it like this: "I understand seeing your portfolio down $200,000 is distressing. Here is what I am thinking about: Is this decline giving us opportunities to improve your portfolio? Are there businesses we have been watching that are now more attractively priced? Should we be adding to positions we love that are temporarily on sale?"

This redirects the conversation from "should I sell to stop the pain" to "should we be buying to capture opportunity?" It does not dismiss their concern. It acknowledges the decline and immediately pivots to how we use it constructively.

During the March 2020 Covid crash, we had clients down 30% calling in panic. We did not tell them not to worry. We told them: "Your portfolio is down significantly. So is everyone else's. The question is not whether to accept this decline—it is already happened. The question is what we do next. We can sell at these depressed prices and lock in the loss, or we can use this moment to add to high-quality businesses trading at discounts we have not seen in a decade."

We then showed them what we wanted to buy. "Microsoft is down 20% from its peak. We think Azure is a $100 billion revenue business in five years. The market is currently pricing it like cloud demand disappeared overnight. We do not think that is accurate. Do you want to add to that position while it is on sale?"

This framework works because it gives them agency. They are not passively enduring volatility. They are actively using it. That psychological shift is everything.

When to Hold Firm vs When to Adjust

Not every client panic call deserves the same response. Sometimes the right answer is "stay the course." Sometimes the right answer is "let's make changes."

The distinction comes down to two questions: Has anything fundamental changed? And is this decline revealing risks we underestimated?

If the answer to both questions is no, we hold firm. "The market is down 5% this week because of macroeconomic fears about Fed policy. That has nothing to do with whether Apple is a well-run business or whether Visa has a durable competitive moat. Our positions have not changed. Our thesis has not changed. The prices are lower, but the businesses are the same."

If the answer to either question is yes, we adjust. During the 2022 inflation surge, we had clients worried about their bond holdings. The right answer was not "bonds always recover eventually." The right answer was "you are correct to be concerned. We built this bond allocation assuming inflation would remain below 3%. It is now clear that assumption was wrong. We need to adjust the portfolio to reflect that reality. Here is what we are thinking."

That conversation led to reducing duration, adding inflation-protected securities, and increasing equity exposure to businesses with pricing power. The client's concern was valid. Acknowledging it and acting on it strengthened the relationship rather than damaged it.

The key is knowing the difference. Most volatility is noise. Markets drop 2-5% regularly for no fundamental reason. That volatility deserves the "hold firm" response. But occasionally, volatility signals something real. That deserves the "let's adjust" response.

We tell clients: "My job is not to eliminate all volatility—that is impossible. My job is to distinguish between volatility that matters and volatility that does not. Most of the time, it does not. When it does, we will adjust."

Scripts That Actually Work

Here are the specific phrases we use repeatedly, because they work.

When a client calls worried about a decline: "I understand seeing your portfolio down is concerning. Let's talk about what has actually changed versus what has just repriced. Walk me through what you are worried about specifically, and I'll tell you how we are thinking about it."

This invites them to articulate their fear. Often, just saying it out loud helps them realize it is not as catastrophic as it felt scrolling through their account balance at 6 AM.

When a client wants to sell to "wait on the sidelines": "I understand the impulse to move to cash and wait for clarity. Here is the problem: By the time you have clarity, prices will have recovered. The market does not wait for you to feel comfortable. It rewards investors who stay invested through uncertainty. Every major recovery looks obvious in hindsight. In the moment, it feels terrifying. That is why most investors miss it."

This acknowledges their impulse without validating it. You are not dismissing their fear. You are showing them why acting on that fear would be counterproductive.

When a client points to someone who "got out at the top": "I am sure that person feels smart right now. The question is what they do next. Getting out is easy. Getting back in is hard. Most investors who go to cash during corrections wait too long to reinvest. They miss the recovery and end up buying back in higher than where they sold. We have seen this pattern repeatedly. Staying invested through volatility is uncomfortable, but trying to time the market is usually more costly."

This reframes market timing as harder than enduring volatility. It shifts their reference point from "I am losing money by staying invested" to "I would probably lose more by trying to time this."

When a client asks "should we sell everything and start over?": "Let's walk through that scenario. You sell everything today. The market drops another 10%, and you feel vindicated. Then it starts recovering. At what point do you buy back in? After it is up 5%? 10%? 15%? Most investors wait until they feel comfortable, which means waiting until the recovery is well underway. You would sell low and buy high. That is the opposite of what we want."

This makes the consequences concrete. Selling sounds like taking control. Walking through what happens next shows it is usually taking control in the wrong direction.

The Pre-Volatility Conversation

The best time to explain volatility is before it happens. Every new client relationship should include a conversation about what volatility will feel like and how we will handle it.

We say this explicitly: "At some point in the next few years, your portfolio will decline 20% or more. That is not a prediction of a crash. That is a statistical reality of equity investing. When it happens, you will feel terrible. You will see your account balance down significantly. You will question whether this portfolio is right for you. You will wonder if we should make changes. That feeling is normal. Here is how we will handle it."

Then we walk through the framework. Temporary vs permanent. Opportunity cost. When we hold firm vs when we adjust. We make it concrete so that when volatility arrives, it feels expected rather than catastrophic.

This does not eliminate the discomfort. But it does eliminate the surprise. Clients who have heard this conversation before volatility hits respond differently than clients who have not. They still call. They still feel anxious. But they remember: "You told me this would happen. You told me I would feel this way. You told me we would stay the course unless something fundamental changed."

That memory is powerful. It turns volatility from "something is wrong" into "this is what we prepared for."

When Clients Override You Anyway

Sometimes, despite your best explanations, a client insists on going to cash. They are too anxious to stay invested. They cannot sleep. They want out.

This is where you make a judgment call. Is this client truly panicking in a way that will damage their long-term outcomes? Or are they expressing a risk tolerance lower than you initially assessed?

If it is panic, we push back hard. "I understand you are uncomfortable. I am asking you to trust the process we designed together. We built this portfolio for exactly this scenario. Selling now would undo everything we are trying to accomplish. I strongly recommend staying the course."

If they still insist, we do not let them sell everything. We offer a compromise: "Let's move 20% to cash. That will give you some comfort that you have taken action, but it keeps you mostly invested so you do not miss the recovery. We will revisit this in 30 days and see how you feel."

This usually works. The act of doing something—even something small—relieves the psychological pressure. They feel heard. They feel like they took control. And they stay mostly invested.

If it is genuinely mismatched risk tolerance, we adjust the portfolio permanently. "It sounds like we built a portfolio that is more aggressive than you are comfortable with. That is on me—I should have calibrated this better. Let's talk about what allocation would let you sleep at night, even during volatility. We will adjust accordingly."

This is not capitulation. This is recognizing that a client who cannot handle volatility will eventually panic at the worst possible time. Better to build a more conservative portfolio they can stick with than an optimal portfolio they will abandon.

The Long-Term Relationship Benefit

Clients remember how you handled volatility more than they remember your returns during bull markets. Everyone looks smart when the market is up 20%. The advisers who build lasting relationships are the ones who provide clarity and confidence when markets are down 20%.

We have clients who have been with us for 15 years specifically because of how we handled 2008. Not because we avoided losses—everyone had losses. But because we called them proactively, explained what was happening, showed them what we were doing, and kept them invested through the worst period. When the recovery came, they participated fully. Their friends who panicked and went to cash did not.

That experience creates loyalty that no amount of good performance can match. Clients who trust you during volatility trust you forever.

The conversations are uncomfortable. The explanations require patience. The pushback requires conviction. But this is the work. This is where you earn the relationship.

Volatility is not a problem to solve. It is an opportunity to demonstrate why your clients hired you. To provide the discipline and perspective they cannot provide themselves. To keep them invested when every instinct tells them to flee.

That is the value. Not picking the next Amazon. Keeping them invested so they can own the next Amazon.