It happened pretty quickly. Everything seemed to be humming along nicely, with the S&P 500 reaching an all-time high in mid-February, and now we’ve suddenly found ourselves in a new market correction. 

Every time the markets dip, we hear many comments that take the form of, “This time is different; I just know it is.” The thing is that this time is different, just like every other time. This time it’s not due to fear of rising interest rates and Brexit uncertainty (2018), COVID (2020), rapid interest rate hikes and quantitative tightening due to inflation fears (2022), or no particular reason (August 2024 – I bet you forgot that happened). You see, there’s always a new reason, and it’s always different! 

Very importantly, however, what isn’t different is that we are confident the market will eventually recover and will yet again reach new highs. 

While it’s never easy in the midst of a market drawdown, long-term investors are rewarded with substantial returns for their resiliency during turbulent times. Rather than just say, “Stay the course,” I wanted to provide you with some helpful context on historical market returns and corrections, as well as some actionable steps you can take to get through this period without upending your portfolio. 

First, Some Stats

Understanding historical market behavior can provide clarity during times of volatility. Here are some key statistics to consider:

• Using data starting in 1928, in 60% of the years, the market has ended up 10% or more. However, within those years, 45% have experienced a correction of 10% or more at some point.¹ Said differently, half of the time, the market is up 10% or more by year-end, there had been an intra-year decline of 10% or more. 
• Since 1926:
  • The market has historically averaged 10% annual returns, but yearly returns rarely land near this figure. In fact, only about 5% of years have produced returns in the 8-12% range.²
  • 94% of years have had a market drawdown of 5% or more. 
  • 64% of years have had a market drawdown of 10% or more. 
  • 40% of years have had a drawdown of 15% or more.
  • 26% of years have had a drawdown of 20% or more.

What does this tell us? Market declines are common—even in strong years! The key is positioning your portfolio to withstand short-term volatility while remaining focused on long-term financial goals. 

What Has Our Team Already Done?

We take a proactive approach to portfolio management, especially during uncertain times. Here’s what we’ve been doing behind the scenes:

• Regular Portfolio Reviews: We consistently review client portfolios, both in scheduled meetings and between meetings, to ensure alignment with financial goals. 
• Minor Rebalancing: These changes can range from altering exposure to the market by adding principal protection and the opportunity for outperformance to adjustments within the debt allocation to better protect against future interest rate hikes. Often times, these changes don’t impact the overall mix of stocks, bonds, and alternatives but instead reduce risk while simultaneously increasing the return potential given the current environment. 
• Mitigating Sequence of Returns Risk: By incorporating assets designed to provide for cash flow in down years, we help clients maintain their standard of living without having to sell investments at a loss. This strategy enables portfolios to achieve impactful long-term market returns without relying on public equities during a drawdown.  SWP Principal David Copeland wrote on this topic in a piece called The Risk You May Not Have Considered.  

What Can You Do?

While we continuously monitor market conditions and adjust accordingly, below are some steps you can take to strengthen your financial position:

• Tax Loss Harvesting: If some investments have declined in value, you may be able to offset gains and reduce your tax liability. Any losses you have in excess of gains in a current year can be carried forward to lower taxes in future years. 
• Reassess Your Allocation: The best investment strategy is the one you can stick with. If you are awake at night thinking about your portfolio, it might be time to revisit your risk tolerance and allocation.
• Consider Roth Conversions: If your portfolio has taken a temporary hit, converting traditional IRA assets into a Roth IRA at a lower valuation means you’ll pay less in taxes on the conversion. When these investments recover, they’ll do so in a tax-free account. This strategy can provide long-term tax-free growth. This strategy is particularly valuable for high-net-worth individuals with a long investment horizon or people at a later stage in life who want to pass on their assets tax-free.
• Buy the Dip: I saved the best for last, though. I suspect most people aren’t comfortable buying more equities at this time. If you’re a net saver (someone still adding to your investments), downturns provide opportunities to buy stocks on sale. Systematic investing during market pullbacks has historically been a strong long-term wealth-building strategy.

Final Thoughts

Market downturns can be unsettling, but they are also an expected part of investing. The key is to remain focused on your long-term strategy while taking advantage of the opportunity that volatility can present.  If you have any questions or would like to discuss your portfolio in more detail, our team is here to help. We’re committed to guiding you through turbulent times with confidence and expertise.

¹ This is Normal – A Wealth of Common Sense

² Stock Market Returns Are Anything But Average – A Wealth of Common Sense

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This article contains general information that is not suitable for everyone. The information contained herein should not be constructed as personalized investment advice. Reading or utilizing this information does not create an advisory relationship. An advisory relationship can be established only after the following two events have been completed (1) our thorough review with you of all the relevant facts pertaining to a potential engagement; and (2) the execution of a Client Advisory Agreement. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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