Markets rarely move in straight lines. Prices rise, fall, and sometimes swing sharply from one day to the next. This natural rhythm is called volatility — a measure of how much and how quickly prices change over time. 

Although volatility can seem unsettling, it’s a normal part of the market. How much of it, and for how long, can be the difference maker. In fact, some investments can either withstand volatility or even potentially benefit from it.

For investors with a long-term mindset, managing volatility could offer more than just defense. It could also create opportunities to build resilience and stay on track.

What volatility really means

Volatility may be spoken about in negative terms, but it’s not inherently bad for an investor’s portfolio. That’s because volatility reflects movement, rather than loss. 

A highly volatile market experiences bigger or more frequent price changes, while a calmer market sees steadier trends. Markets move through cycles of calm and turbulence. Over time, they shape how the market grows and resets with changing economic conditions. 

Historically, markets have gone through turbulent periods even as they climbed higher over the long term. The S&P 500, for instance, has experienced drops of 10% or more nearly once a year on average, but still delivered strong positive returns most of the time.¹

Rather than reacting emotionally to market swings, investors may be able to navigate volatility to their advantage, depending on their overall strategy.

Tools built for changing markets

When markets become unpredictable, the instinct may be to look for stability. Although volatility can’t be eliminated, some strategies are designed to handle it more effectively. These approaches often have one of three goals: Softening downturns, responding to sharp moves, or maintaining balance through changing conditions.

Defined outcome ETFs

Defined outcome exchange-traded funds (ETFs) are structured to limit losses within a certain range while capping potential gains.² They aren’t built specifically for volatile markets, but their built-in buffers can help smooth performance during unpredictable periods. 
When markets become more unpredictable, the natural instinct is to look for safety — or at least stability. Although volatility can’t be eliminated, there are certain investments that are built to handle it better than others. These tools may not offer quick wins, but they can help long-term investors stay balanced when conditions change quickly.

Low-volatility ETFs

Low-volatility ETFs are designed to track the market, but with fewer ups and downs. They often focus on companies with more stable earnings, stronger balance sheets, and less price movement over time.

These funds won’t avoid every market drop, but they may reduce swings, which can help long-term investors stay invested during rough patches.

Dividend-focused investments

Dividend-paying stocks and dividend ETFs provide income through regular payments, even when prices fluctuate.³ That income stream can help smooth the ride during volatile periods and reduce the pressure to sell when markets dip.

For retirement-focused investors, dividend strategies may offer a sense of steadiness — even when the broader market feels anything but.

Balanced and multi-asset funds

Balanced funds combine stocks, bonds, and/or cash alternatives in a single portfolio.⁴ They’re designed to spread out risk and adjust automatically as markets shift.

Because these funds are diversified by design, they may help cushion losses when one part of the market is struggling. They reduce the need to guess which part of the market will perform best next. Target-date funds fall into this category — and many investors already use them in 401(k)s without realizing it. 

Buffered ETFs

Buffered ETFs are built to handle market bumps more directly. They offer partial protection against losses (up to a set limit) during a specific time period.⁵ In exchange, they cap how much an investor can gain.

These funds may appeal to investors who want to stay invested while limiting downside risk in uncertain conditions. Like all market investments, they do not guarantee protection. Buffered ETFs are more complex than traditional ETFs, but they’re still designed with long-term investors in mind.

Actively managed volatility strategies

Some mutual funds and ETFs are managed specifically to respond to changing market conditions. These funds may adjust how much risk they take based on how volatile the market becomes. In most cases, they are “actively managed,” meaning there are financial professionals who oversee changes and make them as often as necessary.⁶ 

These strategies don’t try to time the market, but they may reduce exposure to certain stocks or sectors when things get especially choppy. That flexibility can help keep a portfolio aligned with long-term goals without needing constant hands-on changes.

What about inverse or leveraged ETFs?

There are other products, such as inverse or leveraged ETFs, that tend to get more attention when markets are volatile.⁷ These are built for short-term moves and are generally used by experienced traders, not long-term investors. For retirement-focused portfolios,  they may not be a practical fit. 

What to think about before using volatility strategies

Volatility-focused investments offer important tools, but they are not universally suited for every portfolio. Costs vary widely, and some strategies carry higher expenses compared with traditional funds.

These strategies can behave differently than expected, especially if held longer than intended. Understanding how they work is key. Some strategies are structured for daily resets, which can cause returns to diverge significantly from expected performance if held over weeks or months.⁸

It is also important to remember that volatility does not necessarily predict market direction. High volatility can occur during rallies as well as during downturns. A well-diversified investment plan that reflects long-term objectives can help reduce the temptation to react impulsively to short-term moves.

Confidence through change

Volatility is not necessarily a threat to avoid. It can be a feature of healthy, dynamic markets. Understanding how it works, and knowing how to navigate it, can help investors stay focused even when headlines become noisy.

Maintaining a disciplined approach during periods of change has historically helped investors stay on track toward their financial goals. Recent research from Empower shows that investors who maintain steady contributions and avoid selling during volatile periods often emerge stronger once markets stabilize. Whether through rebalancing, using buffered strategies, or simply staying committed to long-term plans, thoughtful action often makes the difference.

When markets move, staying steady can unlock new possibilities. Volatility may not always feel comfortable, but it can also be a sign that new opportunities are on the horizon.