Market Volatility Got You Worried? Why Having a Plan (and an Advisor) Is Key

Recent weeks have seen significant turbulence in the financial markets, with major stock indices experiencing sharp declines. Events like the Dow Jones Industrial Average's third-largest one-day point drop can understandably cause concern for anyone watching their investments. However, it's important to remember that market ups and downs, while unsettling, are a normal part of the investment journey, especially over the long term.

What's Been Driving the Markets?

The market volatility in early April 2025 has been fueled by new developments in international trade policy, specifically the announcement and implementation of new, broad-based U.S. tariffs.

Economic Data: Inflation data (CPI & PPI) showed some easing prior to the tariffs but remained above the Fed's target. Concerns arose that tariffs could push prices higher. The March jobs report showed solid gains but also included downward revisions for prior months.

Tariff Impact: The tariffs, perceived as more aggressive than anticipated, led to a significant market sell-off. The Dow plunged over 2,200 points on April 4th, its third-largest point drop ever, and major indices saw their worst two-day performance since March 2020.

Global Response: Key trading partners like China and the EU quickly announced retaliatory tariffs, escalating fears of a global trade war that could disrupt supply chains and slow economic growth.

Fed's Position: The Federal Reserve held interest rates steady at 4.25%-4.50% in its March meeting, lowering its 2025 GDP growth forecast and raising its core inflation projection.

Keeping Perspective in Turbulent Times

The Futility of Market Timing: Trying to sell before drops and buy before rebounds consistently is nearly impossible. Some of the market's best recovery days happen very close to the worst days. Missing just a handful of these key upswings can devastate long-term returns.

Volatility is Normal: Market fluctuations, including sharp downturns, are not unusual. Markets have weathered numerous crises throughout history and demonstrated long-term resilience.

Mind Over Market: Our emotions can lead to costly mistakes. Biases like loss aversion, herding, and recency bias can prompt panic selling during downturns, leading to a "Behavior Gap" where investors underperform the market due to emotional decisions.

The High Cost of Missing the Best Days

Bad timing can take a significant bite out of returns. Based on JP Morgan data (S&P 500 Index total returns from January 2003 to December 2022), missing out on just the 10 best trading days during that nearly 20-year period could have cost an investor the majority of their overall potential return. Seven of the ten best days occurred during bear markets.

A Financial Plan: Your Anchor in the Storm

• The Discipline to Stay Invested: Strategies like Dollar-Cost Averaging (DCA)—investing a fixed amount regularly—reinforce discipline and turn downturns into opportunities to buy more shares at lower prices.
• Time Horizon Matters: Long-term goals generally allow for more stock exposure, as there's time to recover from dips. A financial plan aligns investments with specific time horizons.
• Diversification's Role: Spreading investments across different asset classes and sectors is crucial. It helps cushion the impact when specific areas are hit hard.
• Built for Bumps: A robust financial plan anticipates periods of volatility and potential downturns.

The Value of Working with an Advisor

• Fiduciary Standard: Advisors operating under a fiduciary standard are legally obligated to act in your best interest, with a duty to disclose and manage conflicts of interest.
• Expertise and Planning: Advisors bring expertise in financial planning, investment management, and tax strategies.
• Behavioral Coaching: Advisors help investors stay disciplined and focused on the long term, bridging the "Behavior Gap."
• Objective Guidance: An advisor provides objective advice aligned with your goals, risk tolerance, and time horizon.

The Power of a Low-Cost, Diversified Portfolio

A well-diversified, low-cost portfolio is foundational for navigating volatile markets. Historical data from Vanguard shows that a 60/40 portfolio reduced the 2008 drawdown by nearly half compared to an all-stock portfolio, while still achieving solid long-term returns.

According to Morningstar's 2022 research, low-cost funds outperformed high-cost funds in every asset class over a 10-year period, with fees being one of the strongest predictors of future performance.

Ready to Build Your Plan?

Building a plan that includes a low-cost, globally diversified portfolio can reduce volatility, improve long-term outcomes, and give you the confidence to stay on track. Consider working with a fee-only fiduciary advisor who can help you build a plan, align your investments with your time horizon and risk tolerance, and avoid the pitfalls of emotional decision-making.

Contact us today to get started.