The recent market dip just ‘hit you in the mouth,’ Mike Tyson-style — did your portfolio pass the stress test for level of risk?

Even Warren Buffett shrugged off the dip. Compared to historic market crashes, he saw it as “nothing” worth losing sleep over. And Berkshire Hathaway plays a long game — a small drop in value isn’t going to shake his strategy. For everyday investors, the same logic applies: a modest dip in your portfolio isn’t a reason to panic.

But if you found yourself rattled by the brief chaos rather than remaining calm, cool and collected, you should use this moment to review how you tend to your assets moving forward.

As Opulus co-founder Ryan Greiser told CNBC (1), “everyone has a plan until they get hit in the mouth” — a Mike Tyson quote that’s fitting for how the market, and investors’ plans, were completely shaken up by geopolitical uncertainty and surging oil prices.

The sell-off was a ‘useful stress test’ of risk tolerance

Buffett isn’t the only pundit who remained unfazed while others began liquidating their portfolios, terrified that the market would plummet even further.

Economists at Vanguard — the world’s largest supplier of mutual funds — urged investors to reflect on any “discomfort” they felt during the decline in a recent analysis of this year’s market fluctuations (2). They said it “reveals something about risk tolerances, which is information that a calm market simply does not provide.”

If the S&P 500’s roughly 9% fall between the end of January and March, or the S&P/TSX Composite Index’s similar pullback during the same stretch (3) “prompted portfolio reviews, hedging activity, or restless nights,” the Vanguard economists say, “that’s meaningful insight — not because this drawdown was particularly dangerous, but because the emotional signal it provides can help investors tailor portfolio allocations to their comfort zones.”

You shouldn’t feel bad about having an aversion to volatility, though, especially given how calm the last decade-plus has been for equity investors. This "unusually friendly" period, as Vanguard Senior Global Economist Kevin Khang calls it, has made negative shifts harder to stomach when they do hit.

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So you’ve discovered you may be a more cautious investor than you thought — now what?

Admittedly, it’s easy for someone like Buffett, worth more than US$140 billion (C$193 billion) (4), to shrug at single-digit losses — or missed opportunities for gains — that may have far larger consequences for the everyday Canadian investor.

But panic-selling because prices are down is never a recommended strategy (5), even from a cautious standpoint. Staying invested through positive and negative market fluctuations is almost always crucial for success in the long game, where real wealth grows (6).

As Greiser says, “what has proven over and over again not to work is making an emotional decision and cashing out when the market is down… If you can stick it out, the right decision is always to do that” (7).

Unfortunately, for those who haven’t been buying and selling for decades — and who have a smaller window of tolerance for sudden drops — this is easier said than done.

If you can learn to roll with the punches, make an objective and informed estimation of any potential long-term damage and learn to brace and pivot accordingly, you'll give yourself a better chance of making it out unscathed.

However, if this recent blip has revealed that the risk of any such stress is simply too much for you, and that your optimal pivot is likely more diversification into safer holdings, then so be it.

What Canadians can do after a market gut-check

Market volatility doesn’t have to derail your finances — but it’s a signal worth acting on. Here are some concrete steps Canadian investors can take: