A Case For Calm

Market uncertainty is inevitable, but in some circumstances, the biggest determinant of investment success isn’t the economy, the Fed, or global tariffs — sometimes it’s an investor’s own behavior. Let’s re-explore how mastering discipline & patience is the key to long-term financial success.

Avoid Emotional Investing

It's completely normal to let your emotions influence your investment choices, especially when markets are going through big ups and downs. When things are booming, many people get caught up in the fear of missing out (FOMO). This can lead them to stray from their well-thought-out plan for how their money should be invested. And when markets decline, seeing your investment values drop can cause anxiety, discouragement, or even devastation.

Why does this happen? There are many reasons, but one of the biggest is what experts call loss aversion. Studies in behavioral finance show that the pain of losing money feels about twice as intense as the joy of gaining the same amount. We often think about loss aversion when the market is crashing, like in 2000, 2008, and March 2020. In those situations, people tend to panic and sell their investments, seeking the safety of cash. However, staying in cash for too long can seriously hurt your chances of long-term financial success.

But loss aversion isn't just about fear. It can also push investors to take excessive risks to try to keep up with others' perceived success. This is where FOMO comes into play, and emotions can lead people to trade their investments too frequently, which research shows investors usually just end up underperforming the market by a significant margin and costing them more in taxes.

To prevent committing such follies, try these three strategies to keep your wits about you when fear and greed make their presence known:

Revisit Your Long-Term Plan: A financial plan is a roadmap to help you navigate both changing circumstances in your life and uncertainties in the market. A methodical approach to portfolio management helps ensure emotions don’t cause costly financial accidents.
Remind Yourself that Diversification Is Smart and Prudent: Investing across asset classes, sectors, and geographies can help manage risk while still accessing hot market niches and themes.
Reflect on Your Emotions: It’s important to acknowledge —not suppress—your emotions. Fear and greed are real; the key is not always acting on them. By taking time to reflect on why you invest and reminding yourself what your financial goals are, you can better stay in control.

Keep a Long View

In early 2009, investors faced a tough situation. The stock market had gone through a period of intense volatility and significant decline, causing many to question long-held investment beliefs. The idea of "just be patient, it will come back" didn't seem very convincing, and buy-and-hold investing felt like a losing game.

When things look bleak, selling your investments might seem like the smart move. After all, it feels like things could always get worse. And sometimes, they do – but often only for a short period. Those who rush to sell can end up making costly mistakes.

The lowest point for the S&P 500 during that period was March 9, 2009, several months after the most severe selling pressure had occurred. Interestingly, around that time, the Volatility Index, which measures fear in the market, was actually lower than it had been in late 2008 during the peak of the financial crisis. This illustrates a common market theme: if stock prices don't scare you out, they can wear you out. Some investors sold in late 2008 due to the extreme volatility and losses. Others held on initially but couldn't endure the ongoing losses and sold by March 2009. For this latter group, it was the length of the downturn, rather than the sharp daily declines, that became too much to bear.

With the benefit of hindsight, we know that the market's lowest point was the end of that decline. The S&P 500 reached a low of 666.79 and then went on to deliver returns of over 1000% in the following 16 years. The key takeaway is that maintaining a long-term view worked then, and it continues to be a sound approach now.

Market timing, or trying to predict market movements, has been a temptation for investors ever since they gained easy access to their accounts. The idea of "buy low, sell high" is appealing and widely known. However, market timing is tricky because it's easy to see market peaks and valleys in hindsight. It's tempting to think, "If only I had sold at the peak and bought back in at the bottom, I could have made a fortune!"

Unfortunately, it's not that simple. At market peaks, there's often a widespread belief that stocks can only go up. Bull markets, positive economic news, and seeing others succeed with investing can make it difficult to sell, as you don't want to miss out on potential gains.

Numerous studies have highlighted the dangers of market timing. One well-known report, the DALBAR QAIB report, found that over 20 years, the average investor's returns significantly lagged behind the S&P 500. Research from Vanguard and Morningstar also supports this, although they suggest the performance gap may be smaller. Even a seemingly small difference in returns each year can add up significantly over time, thanks to the power of compounding.

It's perfectly normal to feel anxious when the stock market declines. But, it may be helpful to reconsider these important realities:

Volatility Is Normal: The S&P 500 experiences an average drop of 14% each year, yet the index has still finished positive in 34 of the last 45 years. A bear market, defined as a 20% decline, occurs roughly every 3–4 years.
Time in the Market Beats Timing the Market: Even if you had invested in the S&P 500 at the peak before the 2008 financial crisis, you’d be up over 400% today.
Emotions and Headlines Are Poor Guides: Investors who reacted to headlines and sold out in 2008, 2016, or 2020 likely missed the rapid recoveries that followed

Staying calm during uncertain times isn't always easy, but history shows that it's an approach that has consistently paid off. In investing, patience is more than just a virtue – it's a winning strategy.

Closing Thoughts

Investors maintaining properly diversified portfolios should find satisfaction in their first-quarter results—a powerful reminder that diversification remains one of the most effective risk management tools available to long-term investors. Despite challenges in the broad U.S. stock market, many balanced portfolios delivered positive quarterly returns. While global equities finished with modest losses for the quarter, core fixed income, and diversifying asset classes such as global credit, alternatives, and real assets have all generated gains. Staying invested, staying diversified, and staying disciplined should continue helping each of you pursue your goals of financial success.