When markets suddenly lurch lower, the flicker of red on a screen is more than a financial read-out. It is an emotional siren. Prospect theory, the landmark work of Daniel Kahneman and Amos Tversky, explains the first half of that reaction. We anchor every outcome to a mental “reference point”—yesterday’s balance, the price we paid, an all-time high—and judge everything as gain or loss relative to it. According to their research, investors hate losses about twice as much as they are delighted by gains. Yet numbers alone cannot explain why that sting often compels such urgent physical reactions—why the heart races, breath shortens, and the urge to act becomes almost uncontrollable.
Neuroscientist Jaak Panksepp’s research on the brain’s separation-alarm circuitry feels relevant to these situations in finance. Buried in the mid-brain is the PANIC/SADNESS network, a survival system that fires when a mammal is abruptly cut off from a source of safety. A plunging portfolio, though entirely abstract to Panksepp’s purpose, can produce a similar emotional response as a lost caregiver or loved one in which the brain floods the bloodstream with cortisol and adrenaline, narrowing attention to the immediate threat and partially silencing the prefrontal cortex that governs long-term planning.
Fight-flight-freeze reflexes take the helm making the act of selling—even at a steep loss—feel like reclaiming control. Unfortunately, that reflexes often cement losses and leave investors sidelined during the very rebound history tells us is likely to follow. Understanding this double-bind—the psychological pain quantified by prospect theory and the physiological hijack of primal panic—is the first step toward building safeguards that keep momentary terror from altering lifetime financial outcomes.
The History: Peaks, Troughs, and Recovery
Markets have always moved in cycles, but the pattern is remarkably consistent: sharp declines are often followed by rapid recoveries.
History is replete with such stories. From the Great Depression through the 2008 financial crisis, and the COVID-19 crash of 2020, downturns have varied in magnitude and length — but every single one was followed by recovery. Importantly, those who tried to time the bottom often missed the early stages of the rebound, which are critical to long-term returns.
In fact, looking at nearly a century of data, downturns of 10% or more are relatively frequent. Yet market recoveries tend to be swift and substantial, especially those preceded by sharper drops. Paradoxically, the steeper the fall, the more potent the potential rebound, making it even riskier to be on the sidelines.
The illustration below charts the S&P 500’s historical prices, peaks and troughs only, between 1928 to 2025, using a logarithmic scale to enhance visual clarity and allow for meaningful comparisons across different market eras. The chart illustrates just how frequent and healthy market corrections can be, and how periods with protracted gains have led to some of the deepest market declines, and vice versa.
April 2025 in Focus
Staying invested, or even modestly increasing equity exposure during market declines, often leads to better outcomes than trying to time the bottom. Likewise, revisiting the alignment between your long-term goals and risk posture when markets have excelled can offer serious benefits and resilience during market downturns.
The chart below illustrates the impact of portfolio changes on a hypothetical $100,000 investment portfolio based on a variety of initial risk levels and risk changes.
Consider an investor who began 2025 with a 60/40 allocation, who on April 8th as the market approached bear market territory, decided to reduce his or her equity exposure to 40% equities to avoid deeper losses. By July 2nd, that investor would have lost $4,256 compared to an investor who also began with a 60/40 allocation but chose to remain invested in 60% equities throughout the entire period.
Looking at the extremes, investors who began the year with 100% equity allocations but were spooked as the market approached bear market territory and decided to “go to cash” would have lost nearly $20,000 compared to someone who remained invested entirely in equities. Similarly, investors who jumped on the market discount to invest cash, hypothetically, could have profited more than $23,000 by jumping into the market at its bottom rather than continuing to hold cash. 
This does not suggest market declines are always buying opportunities for everyone, but it does underscore a critical point: the cost of panic is real, and the benefits of discipline are measurable. Reacting emotionally to volatility often leads to selling low and missing crucial gains.
In times of uncertainty, having a clear investment strategy grounded in long-term goals is the most powerful tool at your disposal.
Think Before You Act
When panic sets in, our brains don’t respond rationally. Neurologically, crises trigger tunnel vision. We focus narrowly on the threat, lose our sense of time horizon, and often resort to simplistic thinking. Selling feels like action, and action feels like control.
Good investing often means resisting those impulses. It means asking: What are the changes that warrant adjusting my long-term strategies? Before you sell investments, ask yourself:
- Have recent market movements truly affected my long-term financial goals or just my short-term comfort?
- Am I adjusting my portfolio to reflect a real change in strategy, or simply reacting to market stress?
- Has the economic outlook genuinely shifted and, if so, is that shift enduring or prone to social or political whims?
We must also take measures to calm the panic of volatility by:
- Reducing stress hormones and re-engaging your rational brain – pause and breathe, step away from the news or computer, go for a walk, do challenging mental math, memorize Shakespeare.
- Zooming out to the big picture – pull up a long-term chart of your portfolio results or reflect on your long-term financial goals.
- Phoning a friend – Call your advisor who is trained specifically to listen to and ease your concerns and is dedicated to your long-term goals.
Staying grounded in your long-term plan remains the most reliable path forward.
The Takeaway: Discipline Over Drama
In practice, our clients have weathered the volatility thus far in 2025 very well, which is a tribute to their wisdom and discipline as well as the support of our Fiduciary Investment Advisors, Investment team, and disciplined investment management process.
But, while the temptation to time the market is deeply human, history and behavioral finance tell us it’s rarely effective. Instead, the more reliable strategy is time in the market, not timing the market.
That means crafting a portfolio aligned with your goals, risk tolerance, and timeline — and then sticking with it, especially when it feels hardest. It means acknowledging our emotional biases, understanding our limited grasp of probability, and trusting in the long-term power of diversified investing.
Ultimately, the goal isn’t to avoid downturns, they’re inevitable. The goal is to build resilience, both in your portfolio and your mindset, so you can weather storms and benefit from the recovery that almost always follows. As always, we’re here to help you stay grounded, informed, and focused on the bigger picture. Please do not hesitate to contact your Fiduciary Investment Advisor should you have any questions or concerns regarding your investment portfolios or long-term financial plans.