Volatility Is the Price of Admission

The S&P 500 is roughly 8-9% off its all-time high. Oil prices have surged since the start of the conflict in Iran. Trade policy remains uncertain. And if you've turned on the news at any point over the past few weeks, you'd be forgiven for thinking the sky is falling.

It's not.

That doesn't mean things aren't uncomfortable. They are. And I want to be clear that acknowledging the discomfort is not the same as dismissing it. There are real humanitarian concerns with what's happening in the Middle East, real economic questions around energy prices, and real anxiety that comes with watching your portfolio decline. All of that is valid.

But here's where I think it's worth stepping back and putting some context around what we're actually experiencing.

This is normal. Genuinely, statistically normal.

Think of it this way. If you've ever been on a long road trip, you know the drive isn't a straight highway the entire way. There are detours, construction zones, stretches of stop-and-go traffic. None of that changes where you're headed. It just changes how the ride feels in the moment.

The stock market works the same way. The S&P 500 experiences a decline of 5% or more roughly three times per year, and a 10% decline about once every 16 months. We've seen 32 pullbacks of 5% or more since the 2009 bear market low. That's nearly two per year. The catalysts are always different (a pandemic, a banking crisis, tariffs, war), but the declines themselves are incredibly common.

What we're going through right now, while unpleasant, is well within the range of what equity investors should expect.

The past couple of years spoiled us a bit. The S&P 500 delivered three consecutive years of 16%+ returns, something that's only happened five times in nearly a century. That kind of calm can start to feel like the norm. It isn't. Volatility is the norm. The calm is the exception.

I like to frame it this way with clients: volatility is the price of admission to being an equity investor. It is the very thing that allows you to earn outsized long-term returns. Without it, those returns wouldn't exist. You can't have one without the other.

Underneath the headlines, companies are still doing well.

This is the part that tends to get lost in the noise. When markets decline, it's easy to assume that something must be fundamentally broken. But right now, corporate profit margins remain near all-time highs and earnings continue to grow. The companies inside the S&P 500 (collectively) are still performing.

That distinction matters. We don't own a portfolio of stock tickers. We own a collection of businesses. And those businesses, as a group, are still generating revenue, still growing profits, and still operating effectively, even as the headlines suggest otherwise.

Does that mean things can't get worse from here? Of course not. Nobody has a crystal ball. But it does mean that the foundation underneath this market is considerably different from, say, 2008, when the financial system itself was in question. An 8-9% pullback is not a financial crisis. It's a market doing what markets do.

This is exactly what the plan is for.

If you're a client of ours, you've heard me talk about planning in terms of buckets. The concept is straightforward: we set aside the money you'll need in the near term (think one to five years) in stable, lower-risk investments so that when volatility arrives (and it always does), your day-to-day financial life isn't disrupted. The rest, the money you won't need for many years, stays invested for long-term growth.

The purpose of this structure isn't just mathematical. It's behavioral. When you know that your upcoming income needs are already covered, it becomes a lot easier to look at a headline like "S&P 500 drops 9% from highs" and not panic. That's by design. We made those decisions before the war in Iran, before the oil spike, before any of this, specifically so that we wouldn't have to make emotional decisions during times like this.

I often describe it as creating the conditions for patience to exist. And patience, in investing, is one of the most valuable assets you can have.

Recognizing the feeling without acting on it.

It is completely normal to feel uneasy right now. That's not a flaw in your temperament. It's human nature. We're wired to respond to perceived threats, and a declining portfolio paired with alarming headlines is going to trigger that response.

The key, though, is recognizing the feeling without acting on it. Awareness doesn't have to mean action.

Moving to cash every time markets get rocky might feel safer in the moment, but it's really just trading one risk for another. You eliminate market risk, sure, but you introduce inflation risk and you interrupt the compounding process. The S&P 500's long-term annualized return of roughly 10% over the past century includes holding through world wars, presidential assassinations, financial crises, and pandemics. Those returns belong to the patient investor, not the reactive one.

The bottom line.

There will always be a compelling reason to sell. Always. The war in Iran, trade policy, oil prices, whatever comes next. The list of worries is never empty; it just rotates. If you look back at what fund managers considered the "biggest tail risk" at any given point over the past decade, the concerns are always changing. We moved past each of them.

That's not blind optimism. It's the historical reality of how markets work. And it's why we plan the way we do, so that when the inevitable bouts of uncertainty arrive, we can act with a level head rather than react out of fear.