The past few months have been erratic on the markets, and you may have noticed some days where stocks appeared to tumble badly. Some investors may have been spooked by large single-day declines, fearing that another market crash is coming. But that isn't the case. The reality is that the stock market has just become much more volatile, and big swings are more common than they were in the past. Even a historically safe stock like Pfizer (PFE 0.56%) is seeing heightened levels of volatility.

Below, I'll look at the data to see just how pronounced these big swings are, what may be the cause of them, and what you can do to protect your portfolio.

A family reviewing financial results with an advisor.

Image source: Getty Images.

What the numbers show

Stock prices have been more volatile since the coronavirus pandemic began in March 2020. A good example to help demonstrate that is the movement in the S&P 500. Big percentage changes in the index aren't as likely as they are with individual stocks, because it contains hundreds of different holdings.

In my analysis, I looked at the index's movements since the pandemic, as well as for years before that -- going back to 2016 to find well over 1,000 data points to compare. And while 1% movements aren't all that uncommon for the S&P 500, they are more frequent today -- and 2% and 3% movements, which were once rare, are also more prevalent:

S&P 500 chart showing volatility in recent years.

Source: Yahoo! Finance. Chart by Author. 

If the S&P 500 is down by a few percentage points, you can imagine what that might mean for some of the underlying stocks in the index. Pfizer is one example, as it too has been seeing a lot more volatility than in the past. Since the pandemic started, the stock has moved by 3% (in either direction) 31 times, compared with just 22 times from January 2016 until then. Now those movements happen as often as 10% of the time (e.g. once every 10 days), compared with just 2.1% before. And 2% movements happen 20.6% of the time, versus just 6.8% before the pandemic.

While you can partly blame Pfizer's COVID-19 vaccine for its newfound volatility, it's not the only relevant factor. Over the past year, Pfizer shares are up by just 13%, nowhere near the S&P 500's returns of more than 36%. And that's even though in the first three months of 2021, the company generated $3.5 billion in revenue from its vaccine -- and that number could rise to $26 billion for the full year, representing more than half of the $42 billion in revenue it generated in 2020.

There's little doubt that we're seeing a lot more volatility than we once did, both in the markets as a whole and in relatively safe investments like Pfizer, a company that over the past four years has generated stable profits with net margins of 20% or better.

What's behind all this volatility?

There are several potential explanations for these more frequent fluctuations. The most likely could be the rise of young retail investors. Since the pandemic, there has been a surge in young new investors, thanks in large part to the zero-commission trading platform Robinhood, which grew from 6 million users in 2018 to more than double that at 13 million by the end of 2020. The average age on the platform is 31. Many of those investors are also more risk-tolerant; some of the most popular Robinhood stocks are also the riskiest to buy -- including GameStopChurchill Capital, and AMC Entertainment.  

With little to no sports during the early stages of the pandemic, investing was one way to help pass the boredom of being stuck at home with nowhere to go. The big question, however, is whether the markets will change yet again now that the economy is reopening in some places and life is potentially returning back to normal. Luckily, regardless of the answer, you can still take steps to protect your portfolio.

What can investors do?

Although shares of Pfizer are more volatile than they have been in the past, the healthcare stock is still a solid buy-and-hold investment that you can hang on to for years, maybe even decades. However, if you're looking for an even safer option to help minimize your volatility, investing in an exchange-traded fund (ETF) can be a way to accomplish that. While you will still experience volatility, there will be less of it than you'd get from holding a single stock. You may even want to mirror the S&P 500 using an ETF like the Vanguard S&P 500 ETF.

When in doubt, going with a more diversified mix of stocks will help minimize your overall risk. That is more important than ever before with the markets more volatile and trading near their all-time highs.