The biggest threat to your portfolio isn’t always the market—it’s how you respond to it.
When markets become volatile, the instinct can be almost immediate.
Should I move to cash?
Should I wait this out?
Should I be doing something right now?
It can feel like the right response is to take action.
But in many cases, that instinct is where risk can begin.
We often focus on market risk—fluctuations, downturns, and uncertainty. However, another meaningful source of risk comes from investor behavior.
Behavioral risk refers to the gap between what an investor intends to do and the decisions they make in response to market movements, particularly during periods of heightened emotion or uncertainty.
It can show up in small ways:
Checking accounts more frequently during market declines
Feeling the urge to pause or change contribution patterns
And in more significant ways:
Selling investments after periods of loss
Delaying reinvestment while waiting for what feels like a more favorable entry point
These decisions can feel rational in the moment, often driven by a desire to protect assets.
However, investment outcomes are influenced not only by market performance, but also by consistency in decision-making over time.
Research has explored this pattern. Studies published by Dalbar, Inc. have historically shown differences between average investor returns and broader market index returns, which have been attributed in part to the timing of investor decisions. For example, in 2024, Dalbar reported that the average equity investor return differed from that of the S&P 500 Index.¹
Additional research, including Morningstar’s “Mind the Gap” study, has similarly found that investor returns can differ from the returns of the funds they invest in, due in part to the timing of purchases and sales.²
Data frequently cited by firms such as J.P. Morgan Asset Management has also illustrated that some of the market’s strongest performance periods have occurred during times of elevated volatility. Missing periods of strong market performance may affect long-term outcomes.³
Market timing is sometimes viewed as a way to reduce risk—exiting during downturns and re-entering during recoveries. In practice, this approach depends on making multiple decisions at the right time, which can be difficult to execute consistently.
Even experienced investors may not consistently predict short-term market movements.
Missing periods of strong market performance can have an impact on long-term results, and those periods do not always occur when market conditions feel most stable.
This is where behavioral risk becomes an important consideration.
Because the question is not whether markets will move—they will.
The question is how an investor responds to those movements over time.
At intellicents, we think about investing not only in terms of asset allocation, but also in terms of alignment—ensuring that an investment approach reflects an individual’s goals, time horizon, and tolerance for risk.
When that alignment is clearly defined, it can help support more consistent decision-making during different market environments.
This does not mean ignoring market conditions. Rather, it involves having a structured approach in place to guide decisions, particularly during periods of uncertainty.
Over time, investors who maintain a disciplined approach may be better positioned to stay aligned with their long-term strategy.
summary
Behavioral risk—the tendency to make emotionally driven investment decisions—can influence long-term outcomes. Attempting to time the market can introduce additional uncertainty, while a disciplined and consistent approach may help investors remain aligned with their long-term objectives.
Important Disclosure
This material is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. References to third-party research (including Dalbar, Morningstar, and J.P. Morgan Asset Management) are for illustrative purposes only and may not reflect all factors affecting investor outcomes. All investing involves risk, including the possible loss of principal. Individuals should consult with a qualified financial professional regarding their specific situation.
Footnotes
¹ Dalbar, Inc., Quantitative Analysis of Investor Behavior (QAIB), latest available data
² Morningstar, “Mind the Gap” study, latest available edition
³ J.P. Morgan Asset Management, Guide to the Markets (or similar published materials)
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