Risk and return are related. Stocks are riskier than bonds, which is why they return more.

Intellectually, it’s not terribly difficult for investors to comprehend the risk-and-return factors of stocks, bonds and cash.

But when you’re watching major indices decline by several percentage points over a short period of time, that intellectual understanding may take a back seat to more visceral instincts. That’s when many investors start reaching for the sell button — even if they considered their risk tolerance to be high.

At times of market volatility, some investors flee to cash, which they perceive as being safe. Cash, however, doesn’t keep up with inflation and can erode future spending power if held in large amounts.

But a bad investment decision can easily be rationalized.

For example, people tend to believe that recent events will continue into the future. That phenomenon, known as recency bias, affects investments. It’s what causes people to shuffle portfolio holdings in reaction to recent conditions rather than simply sticking to a predetermined plan.

A stampede into cash or a hasty swap of assets may feel good in the short term, but these actions have long-lasting detrimental effects.

“Sometimes investors can be susceptible to recency bias that can make them their own worst enemies by reacting to the story of the day,” says Keith Reiland, manager of private client accounts at Jensen Investment Management in Lake Oswego, Oregon.

Reiland says investors should remain focused on long-term objectives, “which are likely no different than before China, oil or any other negatives that the markets are fixated on today.”

If an investor remains uncomfortable with the risk-and-return trade-off within his or her portfolio, it may be time to reconsider those investing goals.

John Augustine, chief investment strategist at Huntington Wealth & Investment Management in Columbus, Ohio, says investors should keep their eye on the long term rather than trying to time the market or chase performance.

“Each investor has unique risk thresholds, investment perspectives and time horizons,” he says. “However, each investor has one of three investment objectives tied to their accounts: capital appreciation, income generation or principal preservation. Knowing which account is tied to which objective, and having a time horizon around it, will help investors — and their advisors — best position portfolios through market volatility.”

Reiland says he rarely begins a conversation with a client by asking about risk tolerance. He says that’s “mainly because clients usually describe an understandable aversion to market volatility. While volatility typically represents short-term market movements, risk represents the much more serious threat of a client not reaching their objectives, which are usually tied to a much longer time horizon.”

By reacting to volatility, Reiland says, investors risk repositioning themselves in an overly conservative asset allocation. That hastily constructed allocation may be inconsistent with a person’s time horizon, cash flow needs and overall growth objective.

David Meier, co-portfolio manager at Motley Fool Asset Management in Alexandria, Virginia, says he routinely sees too much attention focused on portfolio return and not enough thought given to risk.

“We define risk as the permanent loss of capital. And we hate to lose money. So during our research process, we ask each other questions like, ‘What could wrong?’ and ‘Are we being compensated enough for taking these risks?’ We cannot eliminate risk from our portfolios, but we can work hard to understand the risks we take,” Meier says.

Augustine says there are four basic tenets for navigating volatile periods in the market.

First, he says, “Everything works some of the time, so be diversified among investing groups of stocks, bonds and real estate. Second, when stock market reports move from the back of the news to the front of the news, it is historically time for investors with a time horizon greater than five years to get more aggressive in their asset allocations.”

Third, he says it’s important to know what you own and why. “That helps investors sleep during periods of increased volatility,” he says. “Fourth, in investing, you win by selling your losers. When volatility spikes, sell something that is reacting abnormally to the downside.”

Advisors emphasize broad diversification because various asset classes don’t perform the same way at the same time. That lack of correlation can help smooth returns and mitigate downside risk.

An honest assessment of one’s own risk tolerance is crucial to meeting investment goals, Meier says.

“That way, when something unexpected happens — and it will — advisors and individuals are able to work together to stick with their plan, which tends to be the best course of action,” he says.

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Are You at the Right Risk Level? originally appeared on usnews.com