Market Volatility in 2026: What High Earners Should Actually Do With Their Portfolio
The last two weeks have been a stress test. In late February, a Supreme Court challenge to the administration's tariff authority prompted a swift pivot to broad universal tariffs under Section 122 of the Trade Act of 1974, and the US jointly entered into a war in Iran. Markets responded with sharp, unpredictable swings. The Fed is now signaling fewer rate cuts than forecasts suggested just weeks ago, stuck managing inflation that refuses to drop below 3% while job growth has cooled. And if you follow financial news at all, your inbox has been a mix of "don't panic" reassurances and genuinely alarming headlines.
Here is the reality: the urge to act decisively during market volatility is completely understandable. It is also, in most cases, the thing most likely to hurt you.
This post is not about predicting where markets go from here. Nobody knows. What it is about is how to think clearly when markets get loud, because the decisions people make during volatile stretches are often the most financially consequential ones of the year. And if you have a high income, equity compensation, or significant wealth tied to a business, the stakes are higher than they are for the average investor.
The Behavioral Trap That Costs High Earners More Than Anyone Else
There is well-documented research (the DALBAR "Quantitative Analysis of Investor Behavior" study, most famously) showing that average investors consistently earn meaningfully less than the funds they invest in. The gap is not explained by fees alone. It is largely explained by poorly-timed buys and sells, concentrated during volatile periods.
High earners face a specific version of this problem. The absolute dollar amounts involved are larger, which makes paper losses feel genuinely alarming in a way that is hard to reason through. Someone watching $180,000 in unrealized gains compress to $130,000 in two weeks has a different emotional experience than someone watching $18,000 become $13,000, even though the percentage drawdown is identical. The dollar figure reads like a real loss, even when nothing has actually been sold.
Add to this the personality dynamic common among high-performing professionals: physicians, senior attorneys, and tech leads are used to being the person who identifies a problem and fixes it. The instinct to act is strong. It works well in a career. It tends to work poorly in investing.
When it does lead to action, it frequently triggers taxable events (selling at a loss and being out of the market for the recovery), disrupts a long-term plan that was built for exactly this kind of environment, and creates a second guess problem: you have to be right twice, once about when to get out, and once about when to get back in.
So before the tactical section: the most valuable move most people can make right now is to pause and assess what, specifically, has actually changed about their financial situation, not about the news, about their situation.
What Is Actually Worth Doing During Volatility
There are specific moves that make sense in a down or volatile market. These are not about predicting market direction. They are about improving your financial position regardless of what the market does next.
Tax-Loss Harvesting: Converting a Paper Loss Into a Real Tax Benefit
If you hold investments in a taxable brokerage account that are currently worth less than what you paid for them, this may be an opportunity to harvest those losses.
The mechanics: you sell the position, realize the loss, and use that loss to offset capital gains you have realized elsewhere during the year. If your losses exceed your realized gains, you can apply up to $3,000 against your ordinary income for the year. Losses beyond that carry forward to future tax years with no expiration.
For a high earner in the 37% ordinary income bracket or paying the 20% long-term capital gains rate plus the 3.8% Net Investment Income Tax, the value of a harvested loss is real. To illustrate: $25,000 of harvested losses applied against short-term capital gains taxed at the 37% rate produces roughly $9,250 in tax savings. (This is a general illustration, not a projection for any individual situation.)
The rule you must understand is the IRS wash sale rule. If you sell a security at a loss and buy back the same or a "substantially identical" security within 30 days before or after the sale, the loss is disallowed. The total window is 61 days (30 days before the sale through 30 days after).
The practical workaround is to reinvest immediately in something that gives you similar market exposure but is not substantially identical. For example, if you sell an S&P 500 index ETF at a loss, you could replace it with a broad total market fund or a different index fund covering similar but not identical holdings. You maintain your market exposure, you do not miss a potential recovery, and you book the loss for tax purposes.
A critical nuance: the wash sale rule applies across all your accounts, including IRAs, and your spouse's accounts. This catches people off guard. If you sell a position for a loss in a taxable account and your 401(k) or IRA automatically reinvests in the same fund through a dividend or rebalancing, the loss can be disallowed. Coordinate carefully, or consult a tax professional before executing.
Roth Conversion Opportunities During a Drawdown
When the value of assets in your traditional IRA has declined, converting some of those pre-tax dollars to Roth means you pay income tax on a smaller dollar amount. If and when those assets recover inside the Roth account, that recovery is permanently sheltered from future taxation.
This strategy requires careful planning around your current year's total income, existing tax bracket, and how much of your other deductions and credits apply. The conversion has to be completed by December 31 of the current tax year.
For those whose wealth is heavily concentrated in pre-tax retirement accounts, this is a scenario worth modeling with a tax advisor. The general logic is most compelling when (1) you believe the converted assets will grow substantially over a long time horizon, and (2) you expect your tax rate in retirement to be comparable to, or higher than, your current rate.
Note for those who have pre-tax money in a 401(k): direct Roth conversions from a 401(k) are only possible if your plan offers an in-plan Roth conversion feature. Otherwise, this strategy applies to a traditional IRA, or requires a rollover from your 401(k) to a traditional IRA first.
Rebalancing: Discipline as a Strategy
Market volatility shifts asset allocations. If your target is, say, 75% equities and 25% fixed income or cash, and equities have dropped, your actual allocation has drifted below your equity target. Systematic rebalancing back toward your target means buying what has gone down and trimming what has held relatively flat.
This is one of the most consistently well-supported strategies in investing: it enforces disciplined buying at lower prices without requiring any prediction about market direction. The evidence from Vanguard and other long-term studies generally shows that investors who rebalance systematically tend to produce more consistent results over time compared to those who let allocations drift unchecked.
If you have not reviewed your target allocation versus your actual holdings in the past six to twelve months, this is a reasonable time to do so.
Deploying Capital That Was Already Earmarked for Investment
This applies to a specific scenario: if you have cash that you have already earmarked for long-term investment (not your emergency fund, not operating cash, not a near-term purchase), a period of elevated volatility and lower prices is when that plan was built for. Deploying that capital systematically during a drawdown is straightforward in principle, even if it is psychologically uncomfortable in practice.
This is not a suggestion to move short-term money into risk assets or to shift defensive positions into equities because things look cheap. Context matters entirely here.
What to Avoid
Moving to 100% cash or equivalents. This solves the immediate discomfort of watching paper losses, but creates two problems: it may lock in losses that would have recovered, and it forces you to make a second decision about when to re-enter the market. The research on investor behavior suggests people who exit during downturns frequently buy back in after the recovery has already occurred, capturing neither the loss protection they were hoping for nor the upside.
Restructuring a long-term portfolio around short-term policy events. The current tariff framework has a 150-day statutory limit under Section 122. That is not a permanent economic reality. Repositioning a portfolio built for a multi-decade time horizon around a policy mechanism with a five-month window is a mismatch of timescales.
Confusing market volatility with a change in your personal financial situation. The risk level in your portfolio should be calibrated to your income stability, liquidity needs, timeline, and tax situation. Those things did not change because tariff headlines moved markets. If the last two weeks felt genuinely scary, that is worth taking seriously, but the right response is a deliberate revisit of your risk profile, not reactive selling under pressure.
If You Hold Concentrated Equity
This environment surfaces specific questions for anyone whose net worth includes a meaningful position in a single company's stock, whether through RSUs, ISOs, NSOs, or accumulated shares.
A company-specific drawdown stacked on top of general market volatility can feel like a strong signal to act. Sometimes it is. But the analysis needs to separate the general volatility question from the concentration question, and the concentration question from the immediate tax consequences.
A few things that are generally true regardless of current market conditions: concentration risk builds over time as a single position compounds while the rest of the portfolio stays flat. The right framework for managing equity compensation is a systematic, written plan that determines how and when you diversify, developed when you are not under the emotional pressure of a downturn. If you have accumulated significant equity in your employer and do not have that written plan, this is a reasonable prompt to develop one.
For business owners, a related version applies. Your business is likely your largest single asset. Your investment portfolio ideally should counterbalance, not amplify, your business exposure. If your company is materially exposed to tariff-driven cost increases through supply chains, imported materials, or international revenue, consider whether your personal investment portfolio is set up to complement that exposure or to run parallel with it. Correlation across your income, your business value, and your liquid investment portfolio in the same economic scenario is a risk that tends to look fine until it does not.
The Short Version
- Do not make sweeping allocation changes based on two to three weeks of headline-driven volatility.
- Review taxable accounts for tax-loss harvesting opportunities, and understand the wash sale rule before executing.
- If you carry significant pre-tax retirement assets, explore whether a partial Roth conversion makes sense given your current-year income picture.
- Compare your actual allocation to your target and rebalance if it has drifted materially.
- If you hold concentrated equity in a single company, use this period as a prompt to build a systematic diversification plan, not to make reactive decisions under pressure.
- If your emotional response to the last two weeks was intense, take that seriously as information about your actual risk tolerance. Your portfolio should reflect who you are, not who you think you should be.
The investors who build real wealth over time are not typically the ones who navigated volatility through precise timing. They are the ones who kept their tax footprint tightly managed, stayed invested through the noise, and used volatile periods to execute on strategies that improve their position regardless of the outcome.
If you want to talk through any of this in the context of your specific situation, we're happy to have that conversation. Schedule a call with Lotus Asset Management.
DISCLOSURE: This blog post is provided for informational purposes only and does not constitute an offer, solicitation, recommendation, or endorsement of any security, investment strategy, or advisory service. Nothing herein should be construed as investment, legal, tax, or accounting advice, nor as personalized investment advice or the formation of an advisory relationship, unless expressly set forth in a written advisory agreement. Any views or opinions expressed are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Recipients should consult their own professional advisors regarding their individual circumstances.
