When markets swing wildly, emotions often take over. Retail investors, in particular, tend to react quickly — sometimes too quickly. Sudden drops in stock prices, uncertain headlines, and economic fears can push people toward what feels “safe.” But experts warn that this instinct may do more harm than good.
In fact, many advisors are now asking a critical question: Is market volatility a trap? Here’s why an income-first strategy could end up “leaving significant gains on the table.”
Why Defensive Moves Aren’t Always Defensive
Periods of volatility often drive investors toward dividend-paying stocks, bonds, and other income-generating assets. The logic seems simple: if prices are unpredictable, at least collect steady income.
However, Nick Ryder, chief investment officer at Kathmere Capital Management, believes this reaction can backfire. Speaking recently on ETF Edge, Ryder cautioned that investors frequently default to income strategies without fully considering the broader picture.
He noted that when investors prioritize income above all else, they often sacrifice long-term growth potential. Over time, this can significantly reduce total returns — especially in environments where markets recover strongly after downturns.
In other words, the desire for stability today may quietly limit wealth accumulation tomorrow.
The Case for a Total Return Approach
Rather than building portfolios around income alone, Ryder recommends focusing on total return — the combination of capital appreciation and income.
A total-return strategy evaluates stocks, bonds, and other investments based on their overall growth potential, not just their yield. This approach aligns portfolios with long-term financial goals instead of short-term fears.
According to Ryder, income shouldn’t serve as the foundation of an investment plan. Instead, investors should:
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Define their long-term goals
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Assess their risk tolerance
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Build a diversified allocation
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Then incorporate income where appropriate
Market pullbacks, he emphasizes, are not anomalies — they are part of investing. Designing a portfolio purely to avoid downturn discomfort may unintentionally expose investors to different risks.
The Hidden Danger of Yield-Chasing
One of the biggest risks during volatile periods is “yield-chasing” — stretching for higher returns without fully understanding the trade-offs.
In fixed income markets, this can mean:
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Extending duration (taking on greater interest rate sensitivity)
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Moving from investment-grade bonds to high-yield bonds
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Accepting significantly different risk profiles for slightly higher payouts
These adjustments might increase income in the short term, but they can also amplify losses during economic stress.
Ryder warns that portfolios can drift into unintended exposures when income becomes the central focus. What appears conservative on the surface may actually carry hidden volatility.
A Resilient Economic Backdrop
Despite ongoing market fluctuations, Ryder remains optimistic about the broader economic environment. He points to continued corporate profitability and overall economic resilience as supportive factors.
While no environment is risk-free, strong corporate earnings and steady economic performance can create opportunities for growth-focused strategies. Investors who remain disciplined through volatility often benefit when markets stabilize and rebound.
Avoiding the “Yield Trap”
Christian Magoon, CEO of Amplify ETFs, echoes similar concerns. He cautions investors against letting distribution yields dictate their decisions.
Magoon argues that smart yield investing means balancing income with upside potential — not simply chasing the highest payout available.
When investors focus exclusively on maximizing yield, they may fall into what he calls a “yield trap.” High distributions can sometimes signal elevated risk, structural weaknesses, or limited growth prospects.
Instead, investors should seek strategies that combine:
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Attractive income
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Long-term capital appreciation
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Sensible risk management
This balanced mindset helps avoid overconcentration in assets that look appealing on paper but may underperform over time.
Is Market Volatility a Trap?
So, Is market volatility a trap? Here’s why an income-first strategy could end up “leaving significant gains on the table.”
Volatility itself isn’t the trap — emotional reactions to it are.
When markets fluctuate, investors often retreat into what feels predictable. But building portfolios around fear rather than fundamentals can compromise long-term growth.
An income-first approach may offer comfort, but it can also:
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Reduce participation in market recoveries
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Increase exposure to hidden risks
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Limit total wealth accumulation over time
A total-return strategy, grounded in goals and risk tolerance, offers a more comprehensive path forward.
The Bottom Line
Market swings are inevitable. Defensive instincts are natural. But successful investing requires stepping back from short-term noise.
Instead of asking, “How much income can I generate right now?” investors may benefit more from asking, “How does this fit into my long-term total return strategy?”
Because in the end, avoiding volatility at all costs may cost far more than investors realize.
