As we have discussed before, financial markets will experience periods of short-term volatility. The cause of the short-term volatility is often different each time. However, the reality is that a market pullback is not unusual or unexpected. In fact, since the early 1980s, there has been a greater than 5 percent drawdown in the S&P 500 Index every year but two (1995 and 2017)!1
This data points to the fact that stock market pullbacks are a normal part of the market cycle and should be anticipated. So, while pullbacks can be unsettling in the short term, history suggests that staying invested and maintaining a long-term perspective can be beneficial. Instead of viewing pullbacks as a cause for fear, they should be seen as a normal and even necessary part of the market's health and growth.2
Bull Markets and Bear Markets
It can be unnerving to consider entering a bear market. However, the chart below shows the average duration and returns during bull and bear markets. It illustrates that bear markets have been much shorter historically than bull markets.
Past performance does not guarantee future results. For illustrative purposes only. Data Sources: Schwab Center for Financial Research, 2025.
The Downside of Missing the Market’s Best Days
It is natural to wonder if you should change your portfolio during periods of volatility. However, the challenge comes down to timing as recoveries have historically happened quickly after market downturns. Missing just a few of the best days in the market can impact long-term returns.3
Timing the market is challenging because investors never know when the best days are coming. If you missed the 10 best days in the market over the past 30 years, your returns would have been cut in half. If you missed the best 30 days, your returns would have been reduced by 83 percent, erasing almost all your potential gains.4
Past performance does not guarantee future results. For illustrative purposes only. Data Sources: Ned Davis Research, Morningstar, and Hartford Funds, January 2025.
As the chart illustrates, timing the markets rarely works, and an investors best approach is usually long-term buy-and-hold investing. For example, think of investors who sold during the global financial crisis of 2008-09, only to miss one of the strongest bull markets in history. Buy-and-hold investing is a thoughtful and strategic approach for investors with growth aspirations and long-term investment horizons.
Dollar-Cost-Averaging
If you are looking to invest in the markets but do not want to rush in at once, you can use the dollar-cost averaging method. Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price. Remember that dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in a rising market. Investors should evaluate their financial ability to continue purchasing through declining and rising prices.
The alternative to dollar-cost averaging is lump-sum investing. This is where you put all the money you want to invest in the market at once. Of course, you should consult with a financial professional to determine which investing approach is appropriate for you.3
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This material is presented solely for information purposes and has been gathered from sources believed to be reliable, however, Landing Point cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Nothing in this presentation is intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Past performance is not indicative of future results.Any opinions expressed are current only as of the time made and are subject to change without notice. This report may include estimates, projections or other forward-looking statements; however, due to numerous factors, actual events may differ substantially from those presented. Advisory services are only offered to clients or prospective clients where Landing Point and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Landing Point unless a client service agreement is in place.
1Business Insider.com, January 2, 2025
2Nasdaq, March 8, 2025
3Business Insider, March 7, 2025
4Investopedia, May 23, 2024