The long, long-term approach to investing

If nothing else, recent bouts of market volatility have served as a reminder that market drawdowns can arrive with little warning — and can vary widely in both depth and duration.

In 2026 alone, geopolitical tensions (Iran), commodity-driven price swings (rising crude oil prices) and fears around the impact of AI capital expenditure have been the catalyst for aggressive sell-offs followed by rapid rebounds.

Over the longer term, too, volatility has been a fact of life. Since the start of the 21st century, investors have navigated a series of major market and economic events, not least the Dot-com bust, the Global Financial Crisis, the pandemic, and periods of rising inflation and interest rates to name just a few. 

For a lot of investors, though, it may feel volatility is getting worse — and certainly no better than the relatively calm environment of the mid-to-late 2010s. This is understandable since measures of market variability have increased: S&P 500 standard deviation, for instance, rose to 17.0% from January 1, 2020 through March 31, 2026, compared with 12.0% from January 1, 2015 to December 31, 2019. 

Market drawdowns of 10% or more have also occurred more frequently than many investors may recall — there have been 16 such drawdowns since 1980. These declines range from short-lived pullbacks to deeper, more prolonged downturns. 

Crucially, though, these drawdowns should not automatically be viewed as the prequel to an economic downturn. Indeed, recent history suggests the opposite. Since the 2008–09 financial crisis, the US has not experienced a traditional economic recession, aside from the brief but severe pandemic-driven contraction in 2020.

Equally, the higher volatility of recent years has not impeded returns. In fact, the current decade has delivered higher annualized equity returns than the preceding low-volatility five-year period, reinforcing the idea that markets can be both volatile and resilient at the same time.

Getting the right mix

So, if volatility is a fact of life, how should investors respond? Much of the time, the investor response is behavioral: Because we experience markets in real time — with constant price movements, media coverage, and performance updates — market-led ups and downs can have an outsized influence on decision-making. This can lead to poorly timed reactions, such as selling during downturns. 

Against this backdrop, our view is that a 100% allocation to stocks is generally neither practical nor advisable. Rather, a diversified investment approach, particularly one that includes lower-volatility assets like bonds, can help smooth the path of returns and reduce the temptation to make emotional decisions.

In this sense, a thoughtful asset allocation strategy that includes fixed income and other low- or negatively-correlated assets can help reduce overall portfolio volatility while still capturing much of equity market upside. Even a modest allocation to bonds can potentially help mitigate drawdowns and improve the overall investment experience.

Ultimately, the Portfolio Construction Solutions team believes that one of the greatest risks to long-term investment success is not market volatility, but the tendency to abandon a well-constructed plan during periods of stress. Preparation — understanding risk tolerance, maintaining diversification and committing to a disciplined strategy — can all help investors stay the course and avoid costly mistakes.

For a more in-depth view on market volatility, read the latest report from our Portfolio Construction Solutions team: Perspectives on market volatility