Normalizing Volatility
Market volatility can produce angst for investors over what to do. Questions like “How long will this last?” or “Should I move to cash?” tend to surface quickly. Yet, for other investors, it is business as usual. They are traveling, renovating their homes or attending the various sporting events their grandchildren participate in. The difference in these two groups is the latter group has a financial plan that anticipates volatility. They don’t know when volatility will occur, but they account for the fact that it is going to occur.
As a financial advisor, talking to clients about their portfolio has been easy over the past two years. In 2023 and 2024, the S&P 500, which tracks the 500 largest U.S. companies, yielded returns over 20%. And while 2025 has been more modest, it is still up 12.26% year to date. Most investors are realistic, knowing these returns are not indefinite or sustainable.
However, there is another type of volatility that occurs more frequently, intra-year declines. An intra-year decline is a large market drop during a 12-month calendar year. For example, the S&P 500 is up 12.26% year to date in 2025. However, during the period between February 19th and April 8th, the S&P 500 was down 19%. The point here is that the 12.26% growth we have experienced has come from a series of ups and downs that have led to this year-to-date average. As stated earlier, 2024 so wonderful growth, but during that 12-month cycle we experienced a 10% pullback.
When you look at long term data, inter-year declines happen more often than we think. Declines of 5% occur every 10 ½ months going back to 1955. Declines of 10% or more occur every 2 ½ years and 20% declines occur about every 5 ½ years. I point this out to highlight their frequency and to emphasize the need for a financial plan that accounts for volatility rather than react to it.
As retirees are taking income from their portfolio, they can’t just turn off the financial spicket during market downturns. No, the income continues to flow regardless of market conditions. To accomplish this over a 20–30-year retirement involves having a plan for volatility, even in good years.
A solid financial plan recognizes volatility as a constant, not a surprise. Investors don’t need to predict the next correction; they simply need a strategy that worksthroughone. A strong plan clarifies how much risk is appropriate, outlines where income will come from and establishes a disciplined framework to avoid emotional decision-making.
Downturns are going to happen, but recoveries will follow. A thoughtful, well-constructed plan allows investors to remain confident, stay invested, and stay focused on their long-term goals despite the market’s short-term noise.