Staying the Course: The Benefits of Sticking to Your Asset Allocation During Market Volatility

Market volatility can be unsettling, but it's crucial to remember the long-term benefits of staying invested in your stated asset allocation.

Historically, the stock market has demonstrated significant growth over extended periods, despite short-term fluctuations. By maintaining your investment strategy, you position yourself to benefit from this long-term growth potential.

Attempting to time the market can be a risky endeavor. Predicting short-term market movements is notoriously difficult, and even investment professionals with decades of experience often struggle to get it right. By sticking to your asset allocation, you aim to manage the risks associated with market timing and strive to make the most of potential gains. Additionally, staying invested allows the power of compounding to work in your favor, as reinvested earnings have the potential to generate additional returns over time.

Emotional decision-making during periods of market volatility can lead to impulsive actions that may harm your financial goals. A well-diversified portfolio helps mitigate risks and smooth out returns, providing a buffer against market swings. By adhering to your asset allocation, you maintain a disciplined approach, avoiding decisions driven by fear or greed.

Included are some charts that show why market volatility, while unsettling, is a natural part of investing.

Market Volatility is Normal

The chart below shows the return of the S&P 500 each calendar year since 1980, as well as the maximum drawdown during the year. Even though the average intra-year maximum drawdown was 14%, the index still ended the year positive more than 75% of the time with an average return of 11%.

Each year has approximately 252 days when the stock market is open. As we can see in the chart below, the S&P 500 moves plus or minus 1% about 63 times per year on average, or about 25% of the time. Of course, it seems a lot less frequent because investors don’t tend to notice the days when the S&P 500 is positive by 1% or more.

These two charts help demonstrate that volatility is normal in the stock market. One of the common sayings we hear from investors concerned about volatility is “this time is different”, when history shows that equity markets tend to recover even after seemingly large drawdowns. That’s why it’s important to stick to your investment plan, even when the market volatility gets alarming.

Want to read more? Check out Markets in Focus: 2025: A Year of Certain Uncertainty

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Investment advice offered through OneDigital Investment Advisors LLC.

This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

Investors should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.

Past performance does not guarantee future results.

Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.

Views and Opinions expressed herein are provided as of 3/24/25.

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