Understanding Equity Market Volatility:
History, Perspective, and the Power of Long-Term Investing
Recent conflict in the Middle East has added new
uncertainties for equity investors. When record
highs continue to be exceeded and portfolios are
reaching new levels, it’s easy to forget that market
volatility is still possible and is very much a part of
stock investing. Sadly, when volatility resurfaces,
many investors begin to panic and sometimes
make rash and emotional decisions with their
portfolios.
Volatility in equities, in simple terms, means price
swings. The magnitude and speed of those price
changes determine how severe the volatility feels.
High volatility results in significant and rapid price
changes, while low volatility leads to more stable
and smaller price fluctuations.
Equity market volatility is often portrayed as
something to fear. Headlines are understandably
unsettling and incite anxiety, commentators
debate
endlessly,
and
investors
feel
the
emotional pull to “do something.” Yet volatility is
not an anomaly and experienced investors know it
is a normal and necessary feature of equity
investing. What experienced investors also know
is that a long-term investing strategy has been the
key to weathering short-term market volatility.
History can give us a valuable perspective on
volatility. Equity markets have navigated world
wars, recessions, inflation shocks, political
uncertainty, financial crises, and even global
pandemics. Yet over time, disciplined investors
with a long-term perspective have been rewarded
for their patience. In recent history, in early 2020,
markets dropped more than 30% in a short period
of time, only to recover and reach new highs
shortly thereafter. (Source: engaging-data.com)
And let’s not forget that during the Global
Financial Crisis, major indexes fell over 50%.
(Source: Federal Reserve History)
(252) 451-0488
www.StrategicFreedom.com
Anthony (Tony) Engrassia, ChFC, LUTCF, NSSA®
Certified Financial Fiduciary®
Each moment felt unprecedented. Each time,
markets eventually recovered. As Sir John
Templeton wisely said, “The four most dangerous
words in investing are: ‘This time it’s different.’”
As you can see from the chart that shows over 40
years of information from 1985 to 2025, every year
featured a drawdown or dip. However, by year-end
the S&P 500 finished up 34 out of 41 years (83% of
the time) despite these annual drawdowns.
Overall Strategy
One of the best ways to prepare for volatility is to
clearly understand your objectives and strategy.
We believe that a long-term investment strategy is
integral to successful financial planning. Focus on
your long-term investment goals rather than
reacting to short-term market movements. As we
noted earlier, over longer periods of time, equity
markets
have
traditionally
recovered
from
downturns.
Maintaining focus on your personal financial
goals should be your main priority. We strive to
craft a diversified, long-term financial plan with
clients that takes into consideration their time
horizon and risk tolerance. We also try to help
clients stay on track and avoid allowing temporary
fluctuations in the markets to divert them from
their long-term path. While this may sound easier
said than done, practicing patience can help you
become more resilient to volatility.
Constantly checking your investments, every hour
or every day, can increase your anxiety. Please
remember that investing for the long-term is never
a straight line, and being consumed by the daily
ups and downs can lead to increased concern. A
well-diversified portfolio can include positions
that can weather short-term volatility and still
allow the potential for long-term gains.
As the great investor Warren Buffett said, “If you
are not willing to own a stock for 10 years, don’t
even think about owning it for 10 minutes.”
Advantages of Market Volatility
Disciplined investors often view market declines
as opportunities. While market volatility can feel
risky, for a disciplined investor, it can create
opportunities.
Volatility
can
introduce
opportunities to accumulate equities at lower
prices. The key is having a plan, and good
emotional management. Here are a few ways you
could enhance your personal situation when
equities take a dip.
Add New Money into Retirement or Brokerage
Accounts to Buy Quality Assets at a Discount: If
you are in a financial situation that could allow you
to make new investments, buying stocks during a
market downturn can be a great way to potentially
increase your long-term returns.
Volatility often pushes prices down faster than
fundamentals change. Fear creates a temporary
price reduction and can create an opportunity for
long-term investors to buy high-quality assets at
lower valuations. For example, if a fundamentally
strong stock drops 20% during a market panic (but
the earnings outlook hasn’t changed), future
returns can improve because you bought that
position at a discount.
Dollar-Cost Averaging: Volatility improves the
effectiveness of consistent investing. When you
invest a fixed amount regularly, you can purchase
more shares when prices are low and fewer
shares when prices are high.
Rebalancing Your Portfolio: In volatile markets,
rebalancing means systematically restoring your
original asset allocation. This can be led by selling
high-performing
assets
and
buying
underperforming ones, which would enforce a
"buy low, sell high" discipline. This strategy is
intended to reduce portfolio risk and aligns
investments with long-term goals.
Tax Loss Harvesting: Strategic tax planning is
always a strong option and savvy investors know
that volatility could become a tax opportunity.
When
investments
decline,
investors
can
potentially sell at a loss and use the capital loss to
offset capital gains. This could provide an
opportunity to invest in a similar, but not the same
asset. For high-income investors, this has the
potential to improve after-tax returns.
What NOT to Do!
Seasoned investors understand that volatility is a
natural part of the investing journey and that
bumps in the road can and will occur. Those who
have experienced challenging periods of volatility
in their investing journey know that there are a
handful of strategies that can make these times
more manageable, as well as pitfalls that can
complicate the situation.
Emotional Decisions: While most investors
recognize the importance of time horizons and
risk tolerance, they sometimes overlook a crucial
factor:
human
emotion.
Even
the
most
experienced investors can be tempted to stray
from their long-term plans and become caught up
in the short-term fluctuations of the economic
environment. Allowing panic and doubt to
influence decision-making, and worrying about
aspects beyond one's control, can lead to rash
and poorly considered choices. You are the best
evaluator of how you react to potentially stressful
situations.
Timing the Market: It can be very tempting to take
money out of equities with the intention of
reinvesting, “when the time is right.” However,
attempting to time the market should not be a
primary strategy. It is nearly impossible to
determine when the perfect time is to get in and
out of the market. The challenge is that recoveries
tend to happen quickly and unpredictably.
Missing just a handful of the market’s strongest
days can significantly reduce long-term returns.
Peter Lynch notably said, “Far more money has
been lost by investors preparing for corrections…
than has been lost in corrections themselves.”
Time in the market continues to be more powerful
than timing the market.
Watching Too Much News: Minimizing your
exposure to media during periods of market
volatility can be one of the healthiest decisions
you make. Constant consumption of headlines
during uncertain times often increases stress and
anxiety
without
improving
decision-making.
Media
coverage
frequently
amplifies
fear,
presenting situations in a way that feels more
dramatic than the underlying fundamentals may
justify.
While you cannot control the news, you can
control how much information you consume—
and how you respond to it. It’s often said that
“perception is reality,” and media narratives can
shape perception in powerful ways. In many
cases, the primary objective is to capture
attention and drive viewership, not to provide
balanced long-term perspective.
Limiting media intake during turbulent periods
can help you maintain clarity and emotional
discipline. Tuning out the daily commentary and
focusing instead on your long-term strategy is
typically the most productive and rational path
forward.
Not Consulting a Professional: Seasoned
investors know that trying to navigate investment
decisions without consulting their financial
professional can pose an unnecessary obstacle
to pursuing their financial goals. Seeking guidance
during confusing times can help investors find the
best path to success with their hard-earned
money.
The Big Picture
Sometimes, the big picture can get lost when
the weeds start to become the focus. Our role is
to help you stay disciplined, informed, and aligned
with your long-term financial goals. We are closely
monitoring areas that may impact your financial
situation. If at any point you would like to discuss
your financial plan and review it to confirm it still
aligns with your goals, please contact us and we
would be happy to explore this with you.
We Will Help You Stay Informed
We believe that an educated client is the best
client. We want our clients to understand how
investments work. This includes volatility, so they
can better evaluate how to react to any daily
movements in the stock market. Our primary goal
as wealth managers is to assist our clients on their
financial journeys, which includes helping them
effectively manage volatility during uncertain
times. If you have any questions or concerns
about your portfolio, please feel free to reach out
to us. We would be happy to talk with you.
Additionally, we advise our clients to keep us
informed of any changes in circumstances, such
as health issues, shifts in retirement goals, or the
sale of a home. The more we know about their
unique situation, the better we can advise them.
A skilled financial professional can help
simplify your journey toward pursuing your
goals. By understanding your needs and
objectives, we can create a plan tailored to your
situation. We welcome the opportunity to take
a look at your financial situation and needs.
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Financial Planning and Advisory Services are offered through Prosperity Capital Advisors (“PCA”), an SEC registered investment advisor. Registration
as an investment advisor does not imply a certain level of skill of training. Wealth Management Strategies and PCA are separate, non-affiliated
entities. PCA does not provide tax or legal advice. Sources: engaging-data.com; Creative Planning; Peter Mallouk; Federal Reserve History.
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