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Market declines are a normal part of investing. Six principles can help investors manage decisions during turbulent periods.
Archive edition · Market data and company circumstances reflect 19 April 2025, when this newsletter was sent.
Market declines are a normal part of investing. Six principles can help investors manage decisions during turbulent periods.
Time in the market, diversification and emotional discipline matter more than trying to identify the exact bottom.
It may not feel like it when headlines scream "crisis," but history is clear: every market decline has eventually turned around.
From 1954 to 2024, the S&P 500 Index has seen:
Market downturns happen frequently but don’t last forever. (Source: Capital Group)
While the specific cause of each downturn has varied — inflation, war, pandemics, bubbles — the outcome has always been the same: the market has recovered, and gone on to reach new highs.
Smart investors don’t panic during downturns. Instead, they remind themselves that declines are a natural, healthy part of investing.
“You make most of your money in a bear market. You just don't realize it at the time.”— Shelby Cullom Davis
Raise your hand if you've ever thought: “Maybe I should wait for the market to calm down before investing.”
Totally fair — but also potentially costly.
History shows that the market’s best days often follow its worst. If you miss just a few of those big rebound days, your long-term returns could be severely impacted.
If you had invested $1,000 in the S&P 500 in 2014 and stayed fully invested through 2024, your money would have grown to $2,869. But if you missed just the 10 best days in that entire period, you’d only have $1,571 — that’s 45% less.
Missing just a few days in the market can hurt market returns. (Source: Capital Group)
Trying to time the market isn’t just difficult — it’s a gamble. Instead, the most reliable strategy is consistent, patient investing over time.
Even the most seasoned investors feel fear during sell-offs. But what separates them from the rest? They don’t let emotion drive decision-making.
Behavioral economists have studied this in detail. Some of the most common traps?
The best way to counter these tendencies? Awareness.
Once you know how your brain might be tricking you, you can build systems that remove emotions from the process — like automated investing or sticking to a written plan.
Your investment strategy should be as intentional as your financial goals.
Whether you're saving for a home, your children’s education, or retirement, your plan should reflect:
And most importantly — it should guide your behavior during market turbulence.
When stock prices fall, you can get more shares for the same amount of money and lower your average cost per share. (Source: Capital Group)
One proven tactic? Dollar Cost Averaging. This means investing a fixed amount regularly (e.g., monthly), no matter what the market is doing. When prices are low, your money buys more shares. When prices are high, it buys fewer. Over time, this can smooth out the cost and help reduce the emotional pressure of timing.
Regular investing isn’t just easier — it’s smarter.
Asset classes go in and out of favor. (Source: Capital Group)
Ever heard of the investor who went all-in on one stock — and lost everything?
That’s the nightmare diversification helps prevent.
While diversification won’t eliminate losses entirely, it spreads risk across various asset classes, industries, and geographies. This can cushion your portfolio when specific areas of the market take a hit.
No one knows which asset class will outperform each year. Sometimes it’s U.S. large caps. Other years, it’s emerging markets or international bonds.
By owning a little of everything, you avoid chasing trends and give your portfolio a chance to grow — no matter where the winners are hiding.
Diversification won’t make you rich overnight, but it helps ensure you’re never completely wrong.
While stocks power long-term growth, bonds provide stability and income.
Why are they so valuable? Because bonds often move in the opposite direction of stocks. When equity markets fall, investors typically flock to the relative safety of bonds — helping them rise in value when you need it most.
In fact, during five of the six major market declines before 2022, bonds (as measured by the Bloomberg U.S. Aggregate Index) rose while stocks fell.
The 2022 downturn was a rare exception, when both asset classes dropped. But that doesn’t negate bonds’ long-term value. Over decades, they’ve proven to be a critical ballast in diversified portfolios.
Especially for near-retirees or conservative investors, bonds help manage volatility and provide peace of mind during uncertain times.
This article preserves the analysis in our weekly newsletter sent 19 April 2025. Market prices, forecasts and company circumstances reflect the time of publication and may have changed.
This material is general information, not personal financial advice or a recommendation to trade. Investing and trading involve risk, including loss of capital.