Market Turmoil: What History Tells Us About Current Volatility
This up-and-down uncertainty is nerve-racking, but a look back at previous downturns shows that the markets are resilient. Here's how to ride out the turmoil.
Every so often, we get a crisis in the stock market. U.S. stock indexes dropped significantly in 2020 because of the COVID-19 pandemic and again in 2023 when the Federal Reserve started raising interest rates. Now we have tariffs.
Time will tell how this shakes out, but if we look back, there are some lessons in history worth reviewing.
Stock market lessons
The U.S. stock market has been incredibly resilient. Whether it’s a weather disaster, terrorist attack, war, pandemic or some other crisis, we have survived.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Not only that, but if you look at the returns of the U.S. stock market following past stock market declines, the next 12 months were mostly more favorable — but only if you stayed fully invested.
Studies have shown that if you miss just a few of the big up days in the market, then your return could be significantly less.
The real risk
When stocks drop precipitously in just a few days, that can be nerve-racking. It’s the uncertainty that the stock market fears. But market volatility can be rewarding, as stocks have historically returned more than bonds and cash.
And you may need that reward to outpace the real risks to your portfolio, namely inflation and taxes. Inflation and taxes are like the silent killers to portfolios over time, slowly eroding your ability to maintain your standard of living.
And that’s why you may need stocks, because going back to 1926, stocks have historically provided the best performance when taking into account inflation and taxes.
What to do?
In the past, staying diversified has helped. A diversified portfolio can be a mix of U.S. and international stocks, bonds, gold, real estate, private investments and other investments depending on the individual investor’s risk tolerance.
If you’re a baseball manager, would you put all your players at shortstop? No, you would sprinkle them around the field to increase the odds of them catching a ball. Same thing with investing: Sprinkle the money around to catch different markets.
Having guarantees has helped my clients. When everything is failing around you, it’s then that you appreciate guarantees.
Annuities can offer guarantees. Whole life insurance has a guaranteed cash value. Structured notes offer some guarantees. Guarantees are like owning a car warranty: You never appreciate it till the thing breaks.
What not to do?
Panic. Making rash decisions can lead to doing something you will regret 12 months later. Give yourself time and space to reflect. When do you need the money? Do you need all of it at once?
Remain calm, speak to your financial adviser, evaluate your situation, then make thoughtful adjustments if need be.
Final thoughts
Times like this can be frustrating. Especially if you just put money into the stock market. But before you beat yourself up too much, review the past lessons above. The U.S. stock market has been incredibly resilient over time, and time tends to heal most wounds.
You can also use this experience as a warning sign — how can you prepare for the next major stock market selloff? Having a cash reserve or building a more diversified portfolio can help.
Having some guarantees or protections can also help. It’s like the adage “fool me once, shame on you; fool me twice, shame on me.”
Never let a good crisis go to waste — use it to build a more resilient portfolio for next time.
For more information on building a more resilient portfolio, please email the author, Michael Aloi at maloi@sfr1.com.
Investment advisory and financial planning services are offered through Summit Financial LLC, a SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Summit is not responsible for hyperlinks and any external referenced information found in this article.
Related Content
- Stick to the Plan: Don't Panic During Economic Uncertainty
- During Market Volatility, Avoid These Common Investing Pitfalls
- Three Keys to Logical Investing When Markets Are Volatile
- Market Volatility Tempting You to Get Out? Read This First
- Four Historical Patterns in the Markets for Investors to Know
-
Turning 65 in 2026? Here Is Exactly How to Sign Up for MedicareWhether you’re months away from your 65th birthday or plan to work past retirement age, here are the steps to secure your Medicare coverage and avoid costly mistakes.
-
A Free Tax Filing Option Has Disappeared for 2026: Here's What That Means for YouTax Filing Tax season officially opens on January 26. But you'll have one less way to submit your tax return for free. Here's what you need to know.
-
Georgia Income Tax Elimination: What the 2026 Tax Cuts Mean for YouState Tax Georgia lawmakers aim to axe the state income tax by 2032. We break down the $16 billion fiscal shift, the fate of the state surplus, and which tax breaks are on the chopping block.
-
Turning 65 in 2026? Here Is Exactly How to Sign Up for Medicare
Whether you’re months away from your 65th birthday or plan to work past retirement age, here are the steps to secure your Medicare coverage and avoid costly mistakes.
-
I'm 61 and Want a Divorce, but I Worry About My Finances. Should We Live Separately but Stay Married?We asked Certified Divorce Financial Analysts for advice.
-
What's in Store for the Stock Market in 2026?Wall Street expects the bull market to keep running in the year ahead.
-
Is a Caregiving Strategy — for Yourself and Others — Missing From Your Retirement Plan?Millions of people over 65 care for grandkids, adult kids or aging parents and will also need care themselves. Building a caregiving strategy is crucial.
-
6 Financially Savvy Power Moves for Women in 2026 (Prepare to Be in Charge!)Don't let the day-to-day get in the way of long-term financial planning. Here's how to get organized — including a reminder to dream big about your future.
-
Private Equity Is Fundamentally Changing: What Now for Investors and Business Owners?For 40 years, private equity enjoyed extraordinary returns thanks to falling rates and abundant credit. That's changed. What should PE firms and clients do now?
-
Stocks See First Back-to-Back Losses of 2026: Stock Market TodayRising geopolitical worries and a continued sell off in financial stocks kept pressure on the main indexes on Wednesday.
-
How to Use Your Health Savings Account in RetirementStrategic saving and investing of HSA funds during your working years can unlock the full potential of these accounts to cover healthcare costs and more in retirement.
