Volatility is the price of admission

One of the biggest misconceptions about investing is that successful portfolios should steadily increase in value with very few interruptions. When markets decline, many investors assume that something unusual is happening or that they should make changes to protect themselves. In reality, market volatility is not an exception to successful investing. It is one of its defining characteristics.

Over the past century, the U.S. stock market has experienced a decline of 10 percent or more, commonly referred to as a market correction, more than once per year on average. Some years have seen multiple corrections, while other years have seen none. Yet despite these periodic declines, the market has continued to create substantial wealth for long-term investors. If corrections occur so frequently, why do they continue to surprise us?

Every Correction Feels Different

The answer is simple. Every market decline feels unique while you are living through it. One year investors are worried about inflation. The next year it may be rising interest rates, geopolitical conflict, banking concerns, government policy or the possibility of a recession. More recently, investors have focused on tariffs, government deficits and questions surrounding economic growth. The headlines constantly change, but the pattern rarely does. Markets experience uncertainty, investors become anxious, and eventually businesses adapt and economies continue moving forward.

History reminds us that every generation has faced events that seemed unprecedented at the time. Wars, financial crises, political uncertainty, global pandemics and technological disruptions have all caused investors to question whether "this time is different." Yet over long periods of time, innovation has continued, corporate earnings have grown, and markets have recovered. While the path has never been smooth, the long-term trend has rewarded patient investors who remained focused on their financial goals rather than short-term headlines.

Volatility Is the Price You Pay

for Higher Returns

Many investors would like to earn the long-term returns that stocks have historically produced without experiencing the temporary declines that inevitably accompany them. Unfortunately, those two outcomes do not exist together. The opportunity to earn higher long-term returns comes with the expectation that markets will occasionally decline, sometimes sharply. If there were no uncertainty, there would be little opportunity to earn returns above those available from cash or high-quality bonds.

This is why I often tell clients to begin thinking about volatility differently. Instead of viewing it as evidence that something is wrong, consider it the price of admission for participating in the long-term growth of businesses around the world. It is not a flaw in the investment process. It is simply part of how investing works.

The Greatest Risk Is Often Emotional

Interestingly, the greatest risk during periods of market volatility is often not the decline itself. It is how investors respond to it. When account balances fall, it is completely natural to want to move to cash and wait until things "feel better." The problem is that markets rarely announce when the recovery has begun. By the time investors regain confidence, much of the rebound may have already occurred.

History has shown that some of the strongest days in the stock market frequently occur shortly after periods of significant weakness. Missing only a handful of those days can have a meaningful impact on long-term returns. This is one reason why successfully timing the market has proven so difficult, even for experienced professional investors.

Volatility Can Create Opportunity

Although market declines are uncomfortable, they often create opportunities for disciplined investors. Lower stock prices allow individuals who are still contributing to retirement accounts to purchase more shares with each contribution. Investors may also be able to rebalance their portfolios by buying asset classes that have become temporarily undervalued or harvest tax losses that can offset future capital gains. Rather than viewing volatility solely as something to endure, long-term investors often recognize that periods of uncertainty can create opportunities that simply do not exist when markets are making new highs.

This is also why we generally do not make dramatic changes to client portfolios simply because markets become volatile. A well-diversified portfolio is designed with the understanding that corrections will occur. Volatility should be expected, not feared.

Focus on the Long Term

The people who build lasting wealth are rarely those who correctly predict every market correction or avoid every downturn. More often, they are the ones who accept that uncertainty is part of investing and remain committed to a thoughtful long-term strategy. They understand that while market declines are temporary, the decisions made during those declines can have lasting consequences.

The next time the market experiences a correction, remember that it is not evidence your financial plan is failing. It is evidence that investing is behaving much as it has for generations. Market corrections have happened more than once per year on average for the past century, and they will almost certainly happen again. The investors who ultimately build meaningful wealth are typically not the ones who avoid volatility altogether. They are the ones who remain invested when everything feels uncertain.

Reid Schwartz is a columnist for The Item and Co-Founder of Creech Schwartz Wealth Management in Sumter, SC, where he works as a financial advisor helping individuals, families, businesses, and nonprofits plan for long-term financial success.

*Tax and accountancy services are not available through or provided by Creech Schwartz Wealth Management or &Partners, LLC.

This article is for educational purposes only and not to be interpreted as tax or legal advice. Any tax planning strategies discussed by Creech Schwartz Wealth Management will be in conjunction with your tax/legal professional.

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