Staying invested during market volatility: why portfolio discipline matters

Periods of volatility can test even the most seasoned investors. When markets and headlines move quickly, emotions can cloud judgement. We explore why stepping back from the noise, maintaining discipline and staying anchored to a long-term strategic asset allocation could help investors navigate uncertain markets.

Cognitive biases can influence even experienced investors. These deviations from rational judgement might shape behaviour, perception and the choices people make under pressure.

For some individuals, these biases become especially clear during periods of market stress, when even those who see themselves as rational and level-headed may find their judgement tested.

Indeed, uncertainty has a way of changing the emotional temperature of investing. Declining asset prices can trigger fear while strong performance can encourage overconfidence.

When asset prices are rising, staying committed to strategic asset allocation might feel straightforward, but when they move sharply lower, that same plan may suddenly come under pressure and clients could find themselves questioning their assumptions and reassessing their risk tolerance. Periods of mixed signals – when the news flow may feel relentless – can also make some more vulnerable to short-term impulses.

“One of the most common behavioural patterns is that investors often feel most comfortable buying during a period of strong performance, but when markets go down, emotions often come into play,” says Marcel Hoffmann, Head of Portfolio Management at Deutsche Bank Private Bank. “They may begin to worry, but periods of uncertainty are precisely when a structured approach can be crucial.”

How emotions and behavioural biases could impact investment decisions

Hoffmann notes how taking money out of the market and waiting on the sidelines can appear to be a prudent response to uncertainty. “The problem is that people then have to make a second difficult decision: when to re-enter,” he says.

“Once an investor has sold, confirmation bias can become very powerful. They may start to look for evidence that markets should fall further, because that would validate the decision to exit. If conditions stabilise, some might find it difficult to accept that the original call could have been wrong – and if they wait too long, they may miss out on periods of recovery.”

A structured investment process could help create distance from those short-term impulses, so portfolio choices are based on long-term objectives rather than the mood of the market.

Hoffmann explains: “Long-term investing is often about avoiding the big mistakes driven by instinct rather than rationale.”

Why investors may struggle to stay disciplined in volatile markets

Remaining committed to an investment strategy during a market downturn can be challenging, especially when it dominates the news cycle and coincides with wider uncertainties around geopolitics, interest rates, growth or policy – and particularly when it begins to impact portfolios. At that point, the question might shift from “what is my long-term objective?” to “how could I avoid further losses now?”

Hoffmann describes a familiar pattern, highlighting how markets tend to price in new developments fairly quickly – but “it’s almost impossible to predict when that may happen”. 

An investor may begin with a balanced strategy and an acceptance that markets move up and down, and a decline of a few percentage points would feel manageable. But if conditions deteriorate and losses deepen, the temptation to sell can become stronger. “That is often where investors might make mistakes,” he emphasises. “Even if markets fall further, those who exit may struggle to re-enter at the same lower level.”

Market recoveries are rarely signposted in advance. Some of the strongest positive days can arrive shortly after the weakest ones, when confidence is still fragile and many investors are reluctant to rebuild exposure. Missing those days could potentially have a disproportionate effect on long-term returns. This is why trying to move in and out of markets successfully is hard to get right in practice: it requires not just one correct decision, but two – when to sell and when to buy back in.

“For investors whose objectives, time horizon, liquidity needs and risk tolerance support it, we believe remaining invested is appropriate because you cannot forecast which days may seem strong performance. That is why time in the market matters, but it also has to be supported by proper diversification and a ‘zen’ approach to analysis,” Hoffmann notes.

How strategic asset allocation may support portfolio discipline

At Deutsche Bank, we believe the foundation of portfolio discipline is a clear strategic asset allocation. This means defining the appropriate mix of assets in line with an investor’s objectives, time horizon, liquidity needs and capacity for loss. It also means being realistic about the level of volatility they can tolerate before discomfort starts to drive behaviour.

Deutsche Bank’s June 2026 PERSPECTIVES Special, “Investing for change: client strategies and concerns”, suggests that many investors may still be operating without some of the core building blocks of portfolio discipline. Only 30.4 percent of survey respondents said they have a clearly defined risk management strategy, while 32.6 percent have a long-term asset allocation between asset classes.

This makes the case for investor education as well as portfolio construction. If a significant share of investors do not have a clearly defined strategic asset allocation, the first challenge may be helping them understand why such a framework matters: how it connects objectives, risk tolerance and long-term discipline before markets become unsettled. Hoffmann’s comments speak directly to that gap, showing why strategic asset allocation could be a practical tool for helping investors make better decisions under pressure.

“What do you need to do? You need to properly define your risk-return profile,” he says. “How much volatility can you accept? What is the maximum amount of losses that you are willing to accept before you are losing sleep? And what is the corresponding return target?”

This trade-off is significant because investors cannot reasonably demand high returns while accepting only minimal fluctuations. A portfolio that is too aggressive for an investor’s true tolerance may force a reaction at the wrong moment. Conversely, a portfolio that is too cautious may fail to meet long-term objectives. The key is setting the strategy carefully, before conditions test it.

Diversification is central to this process, but Hoffmann warns that it must be understood in depth. Just because a portfolio contains many positions does not necessarily mean it is necessarily diversified, he argues. Different assets can share similar sensitivities to currencies, sectors, interest rates, commodities or regions. If those hidden exposures are not analysed, a portfolio may behave very differently from what the investor expects when conditions change.

“A balanced portfolio is a composition,” Hoffmann says. “It is like a symphony if done properly.”

How a structured investment process could reduce emotional decision-making

A structured portfolio management process helps investors move from reaction to reasoning. Rather than treating every market move as a prompt to reconsider the entire strategy, it provides a framework for assessing whether the facts have changed, whether the portfolio remains aligned with its objectives and whether any adjustment is genuinely required.

In discretionary portfolio management, this structure is built into the decision-making process. Portfolio managers can draw on Deutsche Bank’s investment views, research capabilities, risk analysis, sector specialists and portfolio construction expertise. Investment ideas are challenged, risk limits are monitored and exposures are reviewed across multiple dimensions, according to Hoffmann. This does not remove uncertainty, and it does not guarantee that every decision will be right, but it could help reduce the risk of making emotionally driven mistakes at critical moments.

“The key benefit is that we are less emotional than our clients,” says Marcel Hoffmann, Head of Portfolio Management at Deutsche Bank Private Bank. “We aim to have a more balanced view on markets. We are professionals – we do this for a living – and we are used to dealing with information overkill and trying to select the right information.”

“Access to information was key for a successful investor in the past,” Hoffmann says. “Nowadays, investors have access to more data, commentary and analysis than ever before. The issue is identifying what is relevant at a given point in the market cycle.”

The dominant factor influencing markets can change quickly: currencies, interest rates, geopolitical developments, earnings expectations or themes such as artificial intelligence may each fluctuate in importance depending on the environment.

Why staying invested still requires active portfolio discipline

Portfolio discipline should not be mistaken for inaction, Hoffmann points out. “Staying invested does not mean ignoring changes in the market environment or refusing to adapt when circumstances evolve,” he explains. “But it can mean making changes through a structured process rather than through panic, regret or overconfidence.”

That process may include rebalancing, reviewing risk exposures, assessing liquidity needs, adjusting tactical positioning or revisiting whether the strategic allocation remains appropriate in the prevailing conditions. As found in the CIO report mentioned above, this appears to already be front of mind for many investors: 36.1 percent said they plan to revise their strategic asset allocation, while an even larger share, 47 percent, expect to take a more tactical approach as opportunities present themselves. A further 29.7 percent said they would broaden their approach and look for new risk management methods¹.

This is where tactical asset allocation may add value. Informed by Deutsche Bank’s Chief Investment Office views, it allows portfolios to respond selectively to shorter-term market opportunities or risks, while remaining anchored to the strategic allocation and the client’s agreed objectives.

“The key is that these decisions are made in relation to a client’s objectives and risk tolerance, not in response to the latest market headline,” says Hoffmann. “Every client is different. Some may be willing and able to accept more volatility in pursuit of a higher return target, while others need a portfolio that is designed to avoid undue concern. The key point is to define that trade-off clearly before markets test it.”

For ultra-high-net-worth individuals and families, this can be particularly important because portfolios often sit within a broader wealth structure. Operating businesses, real assets, strategic holdings, liabilities, liquidity requirements and intergenerational goals can all shape the role a liquid investment portfolio needs to play. Our approach therefore begins with understanding a client’s goals: what the portfolio is for, as well as what it owns.

Strategic asset allocation then acts as the nucleus of the investment set-up, providing the central framework around which portfolio construction, risk management and ongoing decisions are organised. This involves setting preferred allocations for asset classes on a medium to long-term time horizon.

In that context, discretionary portfolio management may support investors, where appropriate, by helping to define an investment strategy, implement it consistently, monitor risks and provide a layer of professional distance when markets become emotionally demanding.

How portfolio discipline could help investors withstand market uncertainty

Every market cycle is different, but the behavioural challenge is remarkably consistent. Investors are expected to tolerate uncertainty without knowing when conditions will improve. They must make decisions with imperfect information. And they must resist the urge to convert temporary discomfort into permanent strategic change.

Hoffmann’s message is simple: “Markets will test investors. The goal is to build a portfolio and decision-making process capable of withstanding volatility.”

For investors, this raises a practical question: is their portfolio supported by a clearly defined strategic asset allocation, and do they understand how it is designed to behave in different market conditions? That conversation can be especially valuable before volatility tests assumptions, rather than after short-term market moves have already begun to influence decisions.

The ability to stay invested is based on preparation: setting realistic objectives, defining risk capacity honestly, diversifying thoughtfully, challenging bias and relying on a structured process when emotions are most likely to interfere. As Hoffmann puts it: “Although uncertainty may be unavoidable, making undisciplined decisions is not.”

FAQs on portfolio discipline and staying invested in volatile markets