Current Market Volatility: In Shaky Times, Investors Should Hold Their Nerve

When markets feel as shaky as they do now in the US, it is normal to ask: Is this time different?

After all, the S&P 500 Index is down some 4% already this year and there is considerable economic uncertainty. But anxious investors today should consider where the market was five years ago, and how those who tuned out the noise performed.

Then, the COVID-19 pandemic had spread rapidly, and the US stock market dropped 34% in just 23 days—faster than ever before.¹ The VIX index, a measure of investor expectations of volatility often called Wall Street’s “fear gauge,” hit a record high.

Yet within a year, the market had not only recovered, but also risen 78% from its lowest point. People who sold during the panic missed one of the strongest recoveries ever. Each uncertain period brings its own unique challenges, making it more difficult for investors to keep the faith.

When I talk with investors today, some point to government debt, global tensions, or new technologies—all of which are valid concerns. But history shows us that markets have overcome every previous “unprecedented” challenge. The Great Depression, world wars, the inflation crisis of the 1970s, Black Monday in 1987, the Great Recession of 2008—markets have weathered them all.

Each crisis can feel like the end of the world when it happens, yet the pattern of recovery stays remarkably consistent. Over 50 years of working in finance has consistently shown me two things: We cannot predict the future, but despite that uncertainty, markets have eventually bounced back.

There are no guarantees, of course, but that is the way it has worked historically. When markets swing wildly, our instinct is to act to protect ourselves. Some investors respond by pulling their money out until things “calm down.” But this instinct typically results in lower returns than if you did nothing.

The impact of being out of the market for just a short period of time can be profound. Consider a hypothetical investment in the stocks that make up the Russell 3000 Index, which is a good benchmark for the broad US stock market.

A $10,000 investment made in 2000 turned into $66,038 for the 25-year period ending December 31, 2024. Over that same period, if you miss the Russell 3000’s best week, which ended November 28, 2008, the value shrinks to $55,114. Miss the three best months, which ended June 22, 2020, and the total return dwindles to $46,554, roughly losing 30%.²

This does not mean you should never alter your investment mix. The key is knowing the difference between thoughtful changes based on your life events and hasty decisions driven by scary headlines. The first is smart financial planning; the second is more like gambling.

Companies are constantly seeking to solve problems and create opportunities. Some ideas may take off. Others may not. Investors are rewarded for taking on some of that risk. And because the risk is spread across literally thousands of companies, the stock market has positive expected returns even during stretches when the overall economy slows.

Markets have returned on average about 10% a year, which seems like a fair return, given the level of risk taken on. Successful investing is about picking the right portfolio—and having the right mindset. A disciplined approach may help you handle uncertainty without freezing up.³

I have found that it helps to first, accept uncertainty as the cost of potential opportunity—higher expected returns are your “reward” for taking on greater risk. Second, it is important to match your investments with your life, not the news cycle. Third, find partnerships, not predictions. Working with a trusted financial advisor can help you create a personal plan that is designed to fit your goals and aligns with your values. I believe that understanding how markets work leads to better decisions.

We believe investors who grasp how markets function are more likely to stay in their seats during periods of volatility and reap the potential rewards of compounding. An investor who put $10,000 in the S&P 500 at the beginning of 1970 and simply let it ride would have more than $3 million today despite living through eight recessions, multiple wars, political upheavals, and technological revolutions that transformed entire industries.⁴ That is not because they were lucky—it’s because they recognized that the question is not whether uncertainty will appear, but how we respond when it does.

This article originally appeared in the Financial Times and is written by David Booth at Dimensional Fund Advisors.

Footnotes

1. In USD. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment. Decrease of 34% was from Feb. 19, 2020, to March 23, 2020.

2. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. In USD. For illustrative purposes. The missed best day(s) examples assume that the hypothetical portfolio fully divested its holdings at the end of the day before the missed best day(s), held cash for the missed best day(s), and reinvested the entire portfolio in the S&P 500 at the end of the missed best day(s). Annualized returns for the missed best day(s) were calculated by substituting actual returns for the missed best day(s) with zero. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Data is calculated off rounded daily index values.

3. In USD. Based on S&P 500 Index annual returns, 1926–2023.

4. Past performance, including hypothetical performance, is no guarantee of future results. Growth of $10,000 is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The analysis is for illustrative purposes only and is not indicative of any investment. S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Indices are not available for direct investment.

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RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.

Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

“Russell” and “Russell 3000® Index” are registered trademarks of FTSE Russel. All rights in the Russell 3000® Index (including any subset or parent index thereof) vest in the London Stock Exchange Group Plc and its group undertakings (collectively, the “LSE Group”), which owns the Index. “FTSE®”, “Russell®” and “FTSE Russell®”, are trade marks of the relevant LSE Group company and are used by any other LSE Group company under license.

Russell 3000® Index measures the performance of the broad U.S. equity market, as defined by FTSE Russell (the “Index Provider” or “Russell”). The Underlying Index is a float-adjusted capitalization-weighted index of the approximately 2,949 largest public issuers domiciled in the U.S. and its territories, as determined by Russell. The Index includes large-, mid- and small-capitalization companies and may change over time. The

components of the Index are likely to change over time.

“Standard & Poor’s®,” “S&P®,” “S&P 500 ®,” “Standard & Poor’s 500®,” “500 ®,”
“Standard & Poor’s Depositary Receipts®,” “SPDR®” and “SPDRs ®” are registered
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THE S&P 500 INDEX
The Index includes five hundred (500) selected companies, all of which are listed on national stock exchanges and spans a broad range of major industries. As of December 31, 2024, the five largest industry groups represented in the Index were: Software & Services 11.58%; Semiconductor & Semiconductor Equipment 11.47%; Technology Hardware & Equipment 9.44%; Media & Entertainment 8.49%; andFinancial Services 8.17%. Since 1968, the Index has been a component of the U.S. Commerce Department’s list of Leading Indicators that track key sectors of the U.S. economy. Current information regarding the market value of the Index is available from market information services.