That Was Fast

The stock market just got a lot more interesting lately. “Interesting” is probably not the word many stock investors would use. “Scary” may be more fitting. Perhaps “disturbing.”

And I get it.

As of this past weekend, the stock market, which we will define as the S&P 500, a collection of the 500 largest companies in the U.S., is down 14% in 2025 and 17% from its all-time high set in mid-February. It’s not particularly fun to check your account balance and see that kind of drop in a matter of six weeks.

The truth is it’s been a bit since stock investors endured such a period. In the last two years the market has headed, almost uninterrupted, in one direction: up and to the right. The biggest drop we saw in 2024 was 8%, and in 2023 it was 10%. The average market decline during the average year is 14%. So the last two years were below average.

As I often preach in these missives, the reason stock investors collect high returns over time is that they are forced to tolerate periods of occasional dismal performance. The price of admission to the stock market game is accepting periodic paper losses.

Sentiment among investors has turned sour. The headlines are blaring negative news. It’s no longer sunshine and roses. And it happened fast.

So I completely understand the angst many stock investors feel at this time.

But we have to place the situation into the proper context.

In 2023, the stock market leaped by 26%, and it followed that up with a surge of 24% in 2024. So even if the market is flat the rest of the year and we end up with a loss of 14%, your three-year average as a stock investor would be 10%.

I’ll take that three-year average return in a heartbeat.

Now, for all I know, the market will continue grinding lower for the rest of this year. It could happen. As investors, we need to recognize that possibility and accept it. Never forget, the key to doing well as a stock investor is to avoid getting scared out of stocks in times of turbulence.

If you think sound investing entails only being invested in the good years and selling out before the seas get choppy, you’re wrong. That’s speculation to the highest degree, and no one can do that consistently. No one.

In fact, the mindset of capturing the upside without suffering the downside is a sure way of getting subpar returns. There are plenty of salespeople in finance industry willing to sell you that dream – and they make a handsome living convincing investors they can offer it – but the loser is always the investor. Every single time.

No one, no matter how talented, can consistently ride the wave up and then glide off before it comes crashing down.

And the good news is you don’t have to nimbly jump in and out of the market to do very well. The stock market has returned around 10% historically. To capture those returns, investors had just one job: hold on through thick and thin; when things were great and when things were grave.

Remember, there is a reason you are taking risks with your money. Over time that risk will pay off by producing gains that you can use to fund your lifestyle, give to your children, or donate to charities. Those gains, however, don’t pleasantly arrive every year, like spring does after winter. You earn them by enduring the market’s temper tantrums.

As long as you don’t need to liquidate your entire account balance tomorrow – or next week, or next month, or next year – then you have time to wait it out.

Eventually, the market will recover. It always has.