The month of April had a lot going on-not sure if it was trying to impress us or stress us out. The S&P 500 fell 10% in two days. That’s only happened four times in history, the most recent being in March 2020 following the outbreak of COVID-19. During this month, we also witnessed the largest 30-minute market cap swing in history—triggered by a single tariff-related headline—which added a staggering $6 trillion to the S&P 500’s value. The stock market is highly volatile right now and that’s putting it mildly. Understanding historical stock market behavior equips us to make smarter, more strategic investment decisions. In fact, we’ve experienced four major stock market crashes in just the past 25 years: the dot-com bubble in 2000, the global financial crisis in 2008, the COVID-19 pandemic crash in 2020, and the Fed rate hike panic in 2022. Despite enduring four—and now five—major crashes over the past 25 years, the S&P 500 has still gained over 500% of total return. This highlights the stock market’s strength and resilience as one of the most powerful vehicles for long-term investment growth. However, it’s important to remember that it also experiences periods of short-term volatility. Developing a clearer perspective on where we fall within our investment timeline enables more strategic planning and enhances the discipline needed to stay the course through both market highs and downturns.
Challenging times like these offer investors not just lessons, but opportunities to strengthen their strategies. When we have a plan we don’t panic. Those who panic most during market turmoil aren’t foolish—they’re simply unprepared. As the title of this blog suggests, it’s important to understand how investing in the stock market works—especially the risks and the short-term volatility that have consistently been part of its history. Investors approaching or entering retirement will face what’s called sequence of returns risk. Essentially this covers how poor investment performance in the stock market coupled with withdrawals from your portfolio can have a huge impact on how long your money will last through retirement. To understand why this matters, let’s look at a simple example: If a $100 portfolio experiences a -10% return, it drops to $90. A subsequent +10% return brings it back to $99, not to the original $100. This highlights how early negative returns can have a greater impact—especially when withdrawals for income begin—since there’s a shorter time horizon to recover from significant losses. This illustration helps investors nearing or entering retirement understand how much risk—essentially, market volatility—they’re comfortable with in order to support a secure and sustainable retirement. In times like these, with market volatility on the rise, it’s reassuring to know that we’ve already built a well-balanced portfolio designed to weather the ups and downs. For younger adults with a longer time horizon until retirement, it’s important to understand the risk of missing out—specifically, the opportunity cost of not being invested in the stock market during key periods of growth. At this stage in our life we should be focused on accumulating assets and staying the course. In 2022, many financial institutions predicted a U.S. recession in 2023. But if you had tried to time the market and stayed on the sidelines, you would have missed a 24% gain in the S&P 500 that year—followed by another 25% rise in 2024. We don’t get to choose when the bull markets come and when the bear markets hit. Typically the 10-20 best days in the markets are responsible for the majority of annual gains in the S&P 500. That is why it is important to always remain invested, especially when having a longer time horizon. Since no one can consistently time the market, staying disciplined is key. As the saying goes, “Time in the market beats timing the market.”
As a young financial advisor and investor, I haven’t experienced firsthand many of the market crashes from the past 25 years. However, I’ve learned valuable lessons from each one by reading extensively and listening to wisdom from peers who have been in this industry far longer. This has helped me not only share that knowledge and wisdom with clients, family, and friends, but also apply it to my own investing practices. Investing in the stock market comes with many uncontrollable factors, making it nearly impossible to predict when we’ll experience two of the best years on record—like we just did—only to be followed by nearly a 20% market correction. That’s simply part of the game. As investors, we can’t afford to be naïve and assume we’ll only be in the market during the good years and somehow exit just before the bad ones. The investors who succeed are those who stick to their plan and take action in spite of uncertainty. What we can control is how we react and what our next move will be on the board.
