Market is volatile, should I move my money to protect myself?

Duncan Lin CFA®
2 days ago
9 min read

What protection really means, why your instincts might be working against you, and how to play offence and defence without leaving the field

When the news gets scary, one question lands in my inbox more than any other.

"With everything going on overseas, should I move my money out of certain investments to protect myself?"

I completely understand why people ask it. The world feels unstable. The Middle East is in conflict. Oil prices are high. Interest rates have gone up. Turning on the news right now feels like watching a disaster movie. Except it is real and your savings are somewhere in the middle of it.

So let me answer this question with the help of our investment philosophy.

First, What Are You Actually Protecting Yourself From?

Before I answer whether you should move your money, let's be clear about protecting yourself from what exactly?

Because there are two very different things that can go wrong with investments. Most people treat them as the same thing. They are not.

The first is that the value of your investments goes down for a while. The number on your statement shrinks. This feels bad. But it has happened to every investor, in every decade, in every country that has ever had a sharemarket. And in every single case throughout history, markets have recovered.

The second is that you permanently lose money. Gone. Not temporarily smaller. Actually, irreversibly lost. This happens when a company collapses completely and never comes back. Or when someone is forced to sell their investments at the worst possible moment because they simply have no other choice.

Here is what most people miss.

These two things feel identical in the moment. But they lead to completely different places. One is a storm you wait out. The other is real, lasting damage.

Prices going up and down is not the real risk. Permanently losing your capital is the real risk.

Everything else is the market doing what markets have always done.

If you want a deeper look at how we define risk, and why the finance industry often gets this completely wrong, I explored this in an earlier post.

What Is Actually Happening Right Now

The conflict involving the US, Israel, and Iran is serious. Oil above $100 a barrel affects the cost of almost everything. Markets have been turbulent. These things are real and I am not going to pretend otherwise.

But here is something equally real.

Nobody has reliable information about how this plays out. Not governments. Not military analysts. Not the most expensive research teams at the world's largest investment banks. Nobody knows how long this conflict lasts. Nobody knows how it ends. Every figure you read in the news is incomplete, delayed, and filtered through the interests of whoever is providing it.

So what is actually driving markets right now?

Not facts. Human emotion. Fear. Uncertainty. The deep human instinct to do something when things feel out of control.

And human emotion, when it comes to investing, has a remarkably poor track record.

Why Moving to Cash Feels Smart and Often Is Not

Let me tell you what actually happens when people move everything to cash during a scary period.

The market stabilises. Or it starts to recover. And now you face a completely new problem, one that is honestly harder than the original one.

When do you get back in?

Sit with that question for a moment. The conditions that make it feel safe to reinvest, calm news, a sense that things are resolved, markets already climbing again, are almost always the conditions where prices have already recovered substantially. You moved to cash to avoid a 20% fall. By the time things feel safe again, the market has already recovered 25%.

You protected yourself from the fall. You also missed the recovery entirely. And you locked in your losses along the way.

Warren Buffett has said he has never met a single person who could consistently get this right. Not in seventy years of watching every kind of investor imaginable. Getting out at the right time is hard. Getting back in at the right time is harder still. Needing to do both correctly, under emotional pressure, every time market trouble arrives? That is where the whole strategy unravels.

The Days You Cannot Afford to Miss

This is the statistic I share with every client who is thinking about moving to cash, because I think it changes the conversation.

A large portion of the sharemarket's long term returns come from a tiny number of extraordinary days. The biggest single day rallies of any given decade. If you had missed just the ten best trading days in the Australian market over the past twenty years, your final portfolio value would be roughly half of what a patient investor ended up with by simply staying put.

And here is the part that really matters. Those best days almost never occur when things feel calm and settled. They occur during periods of peak fear. Often right in the middle of exactly the kind of news cycle we are sitting in right now. The market does not wait for things to feel better before it recovers. It recovers while people are still frightened.

The investors who captured those days were not particularly brave or clever. They were simply still in the market when it happened.

What Howard Marks Said That I Keep Coming Back To

Howard Marks has managed money through every major crisis of the past five decades. The 1987 crash. The dot com collapse. The global financial crisis. The pandemic. He is one of the clearest thinkers in the history of investing.

In an interview I have returned to many times, he was asked when investors should expect the best opportunities to appear.

The best time to buy, he said, is almost always the time when you least want to. When fear is at its highest.

Investing is fundamentally anti-human nature.

"When optimism is riding high, prices are probably high relative to intrinsic value. Prospective returns are modest. When pessimism rules, prices are probably very low relative to intrinsic value. So that means we should turn highly aggressive."

Stay in the Game, But Know When to Play Offence and When to Play Defence

Staying invested does not mean doing nothing.

Think about a soccer team. They never leave the field. They are always in the game. But they do not play the same way in every situation. When they are under pressure, they pull players back into defence. When they sense an opportunity, they push forward and attack. 4-4-2 becomes 4-3-3. The formation shifts. The team stays on the field.

Investing works the same way.

The answer to a turbulent market is never to walk off the field, to dump everything into cash and wait for things to calm down. The answer is to understand where you are in the game and adjust your formation accordingly.

Howard Marks built his entire investment philosophy around reading what he calls the market cycle. Not predicting exactly what comes next, nobody can do that reliably, but reading the temperature of the market. Is fear running the show right now, or is greed?

His insight is simple but powerful. When everyone around you is fearful, when headlines are grim, when people are moving to cash, when markets have fallen, prices are lower than they should be. The market is cold. That is the time to lean forward. To be a little more aggressive. To add to quality positions if your cash allows it.

When everyone around you is euphoric, when markets feel unstoppable, when people are borrowing money to invest in things they do not fully understand, when every dinner party conversation turns to how much someone made on a hot stock, prices are higher than they should be. The market is running hot. That is the time to lean back. To let the defensive parts of the portfolio do more of the heavy lifting.

Right now the market temperature is cold. Fear is elevated. Sentiment is cautious. By that framework, this is precisely the environment where leaning forward, reinforcing quality positions, produces better long term outcomes than retreating to cash.

This is not a prediction about tomorrow. It is a read of the conditions, and an adjustment of the formation.

What Real Protection Actually Looks Like

A well built portfolio is not a single position. It is a team with different players doing different jobs. Some playing defence when conditions are difficult. Some playing offence when opportunity arrives. Some doing both at the same time.

Quality investments as your foundation. Businesses with real earnings, strong finances, and products people genuinely need do not just survive difficult periods. They often come out the other side stronger, because their weaker competitors did not make it through. This is your stable midfield. Always there. Always functioning.
Genuinely defensive positions that cushion the falls. One fund we use in client portfolios is the Plato Global Alpha Fund. What makes it unusual is that alongside its regular investments, it holds short positions. These are deliberate bets that specific lower quality companies will fall in price. When markets sell off, those lower quality businesses typically fall the hardest. Plato's short positions profit from exactly that. Instead of your portfolio falling 20% in a difficult market, it might fall 8%. That difference is enormous. Not just in numbers, but in your ability to stay calm and stay invested. Think of this as your defensive line. It will not score goals. But it stops you conceding badly when the pressure is on.
Investments that actually benefit from volatility. Another fund we use is the Talaria Global Equity Fund. Talaria generates income through an options strategy, effectively selling insurance to other investors who are worried about market falls. The full mechanics deserve their own post and I will get to that. But the key thing right now is this. The income Talaria generates goes up when markets are turbulent, not down. The same environment causing anxiety for most investors is the environment where Talaria is working hardest for its investors. Volatility is not the enemy for a Talaria investor. It is the engine.
Enough income that you never have to sell at the wrong time. Regular income from investments, dividends and distributions, means you never face the worst situation in investing. Being forced to sell quality assets at a temporary low because the cash ran out. Income is what keeps you in the game no matter what prices are doing on any given day.
A cash buffer that is actually an offensive weapon. Six to twelve months of living expenses held in cash is not just a safety net. In the right conditions it becomes an opportunity. It means a market fall is not an emergency. You can wait. You can think clearly. And if the fall is deep enough and the market temperature is cold enough, that buffer is what lets you lean forward and add to quality investments at the best prices you will see in years. The clients who look back on difficult periods as the best investment opportunities of their lives are almost always the ones who had the buffer to act while everyone else was frozen.

The Question Underneath the Question

When a client asks me whether they should move their money right now, what they are really asking is much simpler.

Am I going to be okay?

And the honest answer is that it depends almost entirely on whether we built the portfolio for this kind of moment before the moment arrived.

It depends on whether you own quality investments that will survive the turbulence. Whether the defensive positions are cushioning the falls. Whether the income generating parts are working harder precisely when markets are difficult. Whether you have enough coming in that you are never forced to sell. Whether the cash buffer is there so you can think clearly and, if the moment is right, act.

If those things are in place, yes. You are going to be okay. More than okay. The conditions forming right now are the conditions that historically reward the patient investor most generously.

If any of those things need attention, if the income is thin, the buffer is low, the concentration is too high somewhere, then there are adjustments worth making. Not a wholesale move to cash, but a refinement of the formation so you can stay in the game and play it well.

One last thought.

The best investors in history share one quality that is rarely discussed because it sounds too simple to be the answer.

They stayed in the game.

They adjusted their formation. They leaned forward when others retreated. They leaned back when others rushed forward. But they never walked off the field.

That discipline, staying invested, reading the temperature, adjusting accordingly, is not exciting. It will never go viral. It does not make for a compelling news story.

But over twenty years it is the difference between looking back and knowing you built something, and looking back wondering where it all went.

The field is where the game is won.

Stay on it.