Volatile markets can unnerve even the most seasoned investors. When inevitable corrections occur, we’re left wondering how much lower it will go and if we should “do something.” 

When emotions take over, it’s easy to forget that large drawdowns are actually fairly common: Over the past 75 years (through December 31, 2024), U.S. stocks have returned 12.7% per year despite suffering average intra-year declines of roughly -13.7% along the way.¹

In fact, it’s years without a significant drawdown that seem to be the anomalies: Only seven times in the last 75 years has the market failed to have at least one drawdown of less than 5%.²

• 1950-2024 – The average intra-year drawdown = -13.6% 
• 1950-2024 – The average yearly total return = +12.7%

Intra-year drawdowns refer to the largest market drops from a peak to a trough during a calendar year. Total returns reflect the calendar, year returns for the S&P 500® stock index, inclusive of dividends.

Investors who see past episodes like the one we’re currently experiencing and maintain discipline are often rewarded for their patience. Volatility is the cost the stock market extracts in exchange for excess returns relative to bonds and cash. Eventually, clarity will return, and calm will be restored. Investors who remain focused on the fundamentals will then be able to breathe a sigh of relief with the understanding that history was once again on their side.

Strategies for managing your investments in a volatile market

1. Set and stick to a strategic asset allocation framework that incorporates financial constraints, risk-reward expectations, and unique characteristics. 
2.  Remember that long-term investing is, by definition, long term. Performance should not be measured in days, weeks, or months. Especially when allocating to a retirement account, viewing investment outcomes over decades is often an appropriate approach.
3. Do not sell into panic. The market’s strongest up days often cluster around the market’s worst down days.
4. If volatility has truly impacted your long-term view, consider seeking advice from a professional or enrolling in a managed account service.