There is a moment most investors recognise. Markets drop sharply, the headlines turn grave, and a single instinct takes over: move to cash, step aside, and wait for things to calm down. It feels prudent, and it feels like control. Yet staying invested during volatility, rather than retreating to the sidelines, is usually the more rewarding discipline, and the reflex to sell often costs more than the fall that triggered it.
This is not an argument for ignoring risk, nor for predicting the market's next turn. It is about a quieter truth we return to with clients again and again: the damage from a sell-off is rarely the drawdown itself. It is the recovery you miss while waiting for the clarity that arrives only after the rebound has already begun.
The historical pattern is worth holding in mind precisely when it feels least believable. Major sell-offs have, time and again, been followed by recoveries that arrived sooner than the prevailing fear suggested. According to Julius Baer's Mid-Year 2026 Market Outlook1, the number of trading days it took equities to recover from their lows has tended to shrink across successive crises, with the most recent shocks rebounding especially quickly.
The implication is not that markets always bounce, or that every dip is a buying signal. It is that the window to "get back in" is frequently narrower than the window to "get out" feels in the moment. By the time conditions look settled enough to re-enter, a meaningful part of the recovery has often already passed.
Selling is an emotional decision made under stress, in real time. Re-entering is a rational decision that depends on conditions that rarely announce themselves clearly. The two are not symmetrical, and the gap between them is where long-term returns can leak away.
It also helps to understand why recoveries have tended to arrive sooner. Markets fall fastest when fear is most acute, which is usually the point at which prices have already moved well ahead of any change in the underlying businesses. Once that fear subsides, even slightly, the rebound can be abrupt, because the selling was driven by sentiment rather than by a permanent loss of value. The investor who sold into the fear is then left waiting for a signal that the rebound itself has already removed.
Cash offers a powerful kind of comfort: your nominal capital stops moving. The number on the statement holds still. But holding still is not the same as being protected, and the protection cash appears to offer is largely an illusion of the short term.
Over any meaningful horizon, cash erodes against inflation, and the structural backdrop now makes that erosion harder to ignore. Julius Baer's Market Outlook report describes a shift from what it calls a savings "glut" to a savings "grab": after two decades of abundant global savings holding yields down, rising demand for capital across defence, energy, supply chains, and artificial intelligence infrastructure is now placing a floor under interest rates and keeping inflationary pressure alive. In plain terms, the case for parking wealth in cash and waiting for the old low-rate, low-inflation normal to return is weaker than it was, because that normal is not the one we are moving towards.
Long-run equity returns are concentrated in a small number of strong days, and those days cluster around periods of stress, often immediately after the worst of a sell-off. Sitting in cash through those windows does not simply pause your returns. It removes the very days that do the heaviest lifting over a lifetime of investing.
The cost is invisible at the moment you make it, because nothing appears to be lost. The number on the statement is intact, and the relief is immediate. The cost reveals itself only later, in the returns that never materialised, and by then the decision is long forgotten. We see this pattern often: the move to cash feels like the responsible choice in the moment, and only looks expensive in hindsight, once the recovery it sat out is plain to see.
Staying invested is not the same as doing nothing, and it is certainly not a counsel of passivity. The alternative to the cash reflex is deliberate repositioning rather than reactive retreat. In practice, that rests on three habits.
Cash set aside to cover spending, commitments, and a sensible margin for the unexpected is sound planning. Cash raised in a panic as a bet on the market's direction is something else entirely, and the two should never be confused.
When markets fall unevenly, quality assets can become available at better entry points, and a disciplined investor uses those windows to bring the portfolio back towards its intended shape. This is where engaging volatility actively, rather than simply hedging it away, can turn turbulence into a source of return; we explore that approach in more depth in our piece on market volatility as a strategic advantage.
A portfolio that leans on several independent sources of return, across regions, asset classes, and income streams, is far less likely to force the all-or-nothing decision that cash represents. Higher-quality bonds, for example, now offer a level of income that was absent for much of the past decade, giving a portfolio a genuine cushion alongside its equity exposure. The goal is a balanced, quality-tilted stance you can hold through a sell-off, not a position so concentrated that every wobble feels existential.
The common thread across all three is that the response to volatility is planned in advance, not improvised under pressure. An investor who knows the size of their cash reserve, the conditions under which they will rebalance, and the range of returns their portfolio is designed to weather has already made the hard decisions in calmer moments. When the sell-off arrives, the question is no longer "what should I do?" but "does my plan still hold?", and the answer is almost always yes.
A plan written in calm conditions is what holds when conditions are anything but. That is one of the most useful things we do for clients facing a turbulent market: the work that matters most was done before the turbulence arrived.
We take a holistic view of each client's financial life, and the strategy is personal to each individual, moving as their circumstances evolve rather than as the headlines do. When a sell-off comes, the adviser's job is often not to make a dramatic call. It is to prevent a costly one. Pre-committing to rules, the size of the cash buffer, the triggers for rebalancing, the bounds within which a portfolio is allowed to drift, and it removes emotion from the decision at the precise moment emotion is most expensive.
This is why we treat periods of market stress as moments to revisit the plan, not to abandon it. We would use a sharp sell-off as a prompt to check that a client's cash reserve still matches their real needs, that the portfolio has not drifted too far from its intended shape, and that nothing in their circumstances has genuinely changed. More often than not, the conclusion is to hold course, and that conclusion carries far more weight when it follows a deliberate review rather than a reflexive flinch. Volatility tests the strategy, yet it rarely justifies replacing it.
Before acting on the urge to move to cash, it is worth pausing on a single question: has something changed in your goals, or has something changed only in the market's mood? A genuine shift in your circumstances, your timeline, your liabilities, your liquidity needs, is a sound reason to adjust a portfolio. A shift in sentiment usually is not. The discipline lies in telling the two apart, and in resisting the reflex that mistakes the second for the first.
Sources:
This article is provided for general informational purposes only and does not constitute financial or investment advice. Full disclaimer: www.welf.com/legal