Why Market Volatility Is Normal

Over a typical 10-year period based on investment returns – you’re going to love us twice, hate us twice, and be indifferent to us six times. What this actually means is that over a 10-year period, the market typically goes up dramatically twice (the years you love us), goes down dramatically twice (the years you hate us) and six of the 10 times you get an average return and that’s when you think we are doing an “ok” job. Thus, you need to have a strategy to deal with typically widely-varying investment results.

This pattern is more predictable than most investors realize and understanding it is one of the most powerful things you can do for your long-term financial wellbeing.

Volatility Is a Feature

Most investors experience market downturns as surprises, as if something has gone terribly wrong. In reality, volatility is the price of admission for long-term investment growth. The years that feel catastrophic and the years that feel euphoric are both part of a well-functioning market. The problem isn’t the volatility itself. The problem is being unprepared for it.

When markets are climbing and portfolios are growing, it’s easy to feel like a financial genius. When markets correct, and they will, that confidence can turn quickly into fear. This emotional whipsaw is completely natural, but it’s also where most investors do the most damage to their own wealth.

Research in behavioral finance has consistently shown that emotional responses to financial events lead to poor decision-making. Investors tend to pile into high-performing assets near market peaks and flee to the sidelines near market bottoms, precisely the opposite of what builds wealth over time. Panic-selling during a downturn locks in losses and keeps you out of the recovery that inevitably follows.

The Need to Plan for Volatility

The solution isn’t predicting which two years will be the good ones or avoiding the two bad ones… nobody can do that reliably. The solution is to have an investment strategy and a written financial plan you can stick to through all ten years, including the difficult ones.

A well-constructed portfolio built around your specific goals, timeline, and risk tolerance allows you to weather market swings without abandoning your strategy at the worst possible moment. It gives you something more valuable than market-beating returns in any given year, it gives you the confidence to stay invested long enough to let compounding do its work.

Markets will rise and fall. The investors who succeed are not those who predict the swings. They’re the ones who are prepared for them.

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