Morningstar Investor users sign in here.

Personal Finance

Busting biases in volatile times

A behavioural checklist for investors facing turbulent markets.


Our minds take shortcuts when we make decisions. When we aren’t sure where to order takeout from, for example, we look to online ratings to help us decide. Usually, these shortcuts are for the better.  They help us react quickly, and they help us manage the thousands of decisions we make every day.

There are times, however, that mental shortcuts lead us astray—that’s when they become biases. The complexity of our finances means that many of the shortcuts we use in everyday life can take us down the wrong path when we think about money—even more so when we’re stressed, distracted, unsure, and anxious, as many of us are today. There’s no way to erase our biases, but we can use tested techniques from behavioural science to prevent them from affecting our decisions.

We put together this checklist to help people manage market volatility—and the biases that can come with it— with some straightforward behavioural strategies that can strengthen the decision-making process when it comes to investing:

  1. Get to know your biases: Research shows that understanding our biases can help us spot them in our decisions. Take some time to read about the psychology behind our decisions and emotions. It’s not that you personally have “a problem”—we all make poor decisions sometimes, and it’s useful to understand the large role our biases have in everyday decisions about our lives and finances.

  2. Turn down the noise: Reading or hearing about frequent price changes can put any investor on edge. Set a schedule for how often you check your portfolio to turn the volume down on that noise. The schedule should focus on the long-term performance of your investments and progress to your goals—not on daily changes. When volatility hits, you may want to create a modified schedule, but still keep it calm and moderate—maybe make a rule that you can only catch up on the news once at the end of the day, or even once a week.

  3. Create speed bumps for decisions: Sometimes, the only thing we need to make a good decision is time. But it can be tough to slow down when our emotions are running awry. To help avoid a hasty decision, try setting up decision-making “speed bumps.” One such speed bump could be creating a three-day wait rule (where you can’t act on a decision for three days) or deciding that a loved one or spouse has to sign off on any decision before you take action. Installing these speed bumps can help you take a step back from your emotions, take some time to think, and make a more logical decision in the end.

  4. Reconnect with your goals: If you start feeling anxious about your finances, take a break from day-to-day market performance and check in on your financial goals. Reacquaint yourself with what your goals are, why you set them in the first place, and how your current financial strategy can help you reach them. Adopting a long-term focus is never easy amid volatility, but you can try using a three-step process we developed that can help you slow down, take a breath, and redefine your goals.

  5. Be your own devil’s advocate: If you’re starting to lean toward selling an investment, ask yourself why someone else might buy that same investment. Our minds have an easier time remembering and noticing facts and ideas that support our opinions, and forcing ourselves to take a different perspective before acting can reveal every angle of a decision. This technique can also help you when you’re sifting through information online. If you keep coming across evidence that supports your opinion, challenge yourself to find a site that convincingly shows the opposite.

  6. Thoughtfulness matters: It’s extremely hard to stay calm and wait out the storm when your portfolio’s losing value—we all have a tendency toward action. Don’t suppress this urge; redirect your efforts. Opportunity can abound during market volatility, and this can be a chance to rebalance your portfolio, when stocks are down and bonds are up, you can maintain your asset allocation by selling high and buying low. You can also increase your savings rate to take advantage of market weaknesses, take advantage of tax-saving opportunities, and capitalise on lower interest rates.


© 2023 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This report has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or New Zealand wholesale clients of Morningstar Research Ltd, subsidiaries of Morningstar, Inc. Any general advice has been provided without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782.

More from Morningstar

Does buying a house stack up financially?
Personal Finance

Does buying a house stack up financially?

Buying a house offers stability and a sense of community. But are you buying for these reasons? Or could your money work harder in other ways? 
Two proven ways to make big money in markets
Personal Finance

Two proven ways to make big money in markets

Many ASX success stories – like JB Hi-Fi, Lovisa, and AUB – have followed one of two strategies: rolling out single store formats...
Mark LaMonica's summer reading list
Personal Finance

Mark LaMonica's summer reading list

His favourite investing books.
The wisdom of Charlie Munger
Personal Finance

The wisdom of Charlie Munger

5 Munger quotes to make you a better investor.
Should I lever up?
Personal Finance

Should I lever up?

The role of borrowing in an investment portfolio, and products that offer it.
An 8% retirement withdrawal rate?
Personal Finance

An 8% retirement withdrawal rate?

A radio host advocates no small plans.