Market Volatility: Six Principles for Staying Invested

One week the headlines are calm, and the next they are not, and it can feel like something has gone wrong with your plan. Historically, volatility has been a normal and expected part of investing, not a sign that something is broken. Here are six principles worth keeping in mind the next time markets get rough.

Why Does Market Volatility Feel Worse Than It Actually Is?

Don’t panic. Long-term stock market returns are often described using a single average figure. Understanding what that number means and how markets fluctuate can make individual down years feel less alarming, since a rough year does not necessarily mean the long-term trend has changed.

Principle 1: Volatility Is Part of Investing, Not a Sign Something Is Wrong

Stock markets move. That movement, both up and down, is part of what has historically generated long-term growth. Expecting a smooth, steady climb sets up an unrealistic comparison that can make normal volatility feel like a crisis.

Principle 2: Positive Years Have Outnumbered Negative Years Historically

Looking at the past 100 years of US stock market data, a clear majority of individual years have been positive rather than negative. This does not predict what next year will bring, and past results do not guarantee future performance. But it does offer useful context: a down year has historically been the exception rather than the rule.

Does the Stock Market Usually Recover After a Decline?

Historically, yes, though the timing and size of any future recovery cannot be predicted or guaranteed. Looking at past market declines of varying sizes, from moderate pullbacks to more severe bear markets, the years following those declines have historically tended to show positive cumulative returns on average, based on Fama/French research index data spanning 1926 through 2025. Deeper declines have historically been followed by comparably larger average rebounds. This is a historical pattern, not a guarantee about any specific future decline.

Principle 3: Declines tend to be followed by recoveries

Every drawdown in the historical dataset has eventually been followed by a recovery. Looking at cumulative returns one, three, and five years after declines of 10%, 20%, and 30%, the average has been positive, and often substantially so. The deeper the decline, the stronger the average rebound has tended to be.

Average cumulative returns following a decline (US market, 1926-2025) (Fama/French Total US Market Research Index):

After a 10% decline (29 observations): +11.8% after 1 year, +34.7% after 3 years, +70.0% after 5 years

After a 20% decline, or bear market territory (15 observations): +18.8% after 1 year, +40.7% after 3 years, +67.1% after 5 years

After a 30% decline (7 observations): +21.4% after 1 year, +27.1% after 3 years, +68.2% after 5 years

The recovery has historically tended to begin before it felt safe to stay invested. This is part of why waiting for a clearer signal before re-entering the market can mean missing much of the rebound.

Principle 4: Time in the Market vs. Timing the Market

One of the more counterintuitive patterns in market history is that some of the strongest individual weeks and months have occurred during or immediately after periods of severe market stress. Research using the Russell 3000 index from 2001 through 2025 found that missing just a handful of the market’s best days over that period would have meaningfully reduced overall long-term results. This is part of why many advisors caution against moving to cash during a downturn in an attempt to “wait it out.” Timing an exit and a re-entry correctly, on both ends, is difficult to do consistently.

Principle 5: The Timeframe You Watch Changes the Story

The same market period can look very different depending on how closely you are watching it. A daily chart during a volatile stretch often looks chaotic. The same period, viewed monthly or annually, tends to look calmer and more like a trend. Checking a portfolio less frequently during volatile periods is one simple way to reduce the emotional pull of short-term noise.

Principle 6: Diversification Spreads Out the Guesswork

Which country or sector will lead the market in any given year is notoriously difficult to predict, even for professional investors. Historical rankings of developed-market countries from 2006 through 2025 show leadership shifting substantially from year to year, with no single country consistently on top. Broad diversification, rather than concentrating in whichever market performed best recently, is one way to participate across a range of outcomes rather than guessing which one will win.

What Does MPM Do to Help Clients Through Volatile Markets?

These six principles describe how markets have historically behaved. Just as important is having a plan in place before volatility arrives, including how much is held in stable, accessible assets, how a portfolio is rebalanced, and how decisions get made during a downturn rather than in the middle of one. We cover this in more detail in our Volatility Playbook on our approach to volatile markets. We keep a long-term view with a focus on individual goals rather than reacting to the market! 

Keeping Perspective When It's Hardest

None of these principles make volatility comfortable in the moment. What they can offer is context: a reminder that market swings have historically been part of the process rather than a departure from it. If you would like to talk through how your own portfolio is positioned for volatility, scheduling an intro call may be a good next step.