Investing with a Steady Hand in Uncertain Times
Investing during market volatility requires a disciplined commitment to goals.
At Welch & Forbes, we recognize that the recent period of market volatility has caused some investors to wonder how to navigate the rapidly changing environment. Since the start of sharp tariff increases and decreases, there has been concern about trade wars, unrest in other countries, and their effects on the global economy. These developments can cause angst about the financial impact and lead some investors to contemplate changing course. The team at Welch & Forbes believes it is essential to continue a disciplined approach in uncertain times, driven by individual goals and objectives.
Investor Reactions to Volatility
During market volatility, investors may react in a variety of ways. They may want to sell or quickly buy. Others may hesitate to take action, wondering if decline is on the horizon – or opt to hold steady and wait for the market to recover. Some investors may feel tempted to time the market, but historical data shows it can be difficult and may lead to unfavorable results.
A common implication in media reporting is that when a market declines, investors lose money. In fact, in a declining market, investors generally experience a loss in market value of their investments. Only at the point of actual sale does one realize a gain or a loss.
The Past Can Help Guide the Present
Historical events that have caused sharp market declines include the 2008 Global Financial Crisis, September 11, Brexit, and the Covid-19 pandemic, among many others. The fear of the unknown was unnerving in these circumstances and caused market downturns. However, markets rebounded, stabilized, and returned to growth over the long run.
Welch & Forbes Portfolio Manager Dan Gorman offers, “Most people think of risk in the short term, related to volatility. An equally important risk is the erosion of purchasing power due to inflation over many years. Our long-term approach is an investment strategy that considers various types of risk to create a sound method to allocating assets and protecting wealth over generations.”
Over long periods, equity markets have historically tended to experience growth. For example, according to an analysis by Federated Hermes Inc., $10,000 invested in the S&P 500 Total Return Index in 1975 would be worth $3,422,054 in 2024.
Growth of $10,000 in S&P 500
Sources: Federated Hermes, Inc., Morningstar, Inc. Data as of February 2025.
Disclosure: Past performance is no guarantee of future results. This chart shows the historical performance of the S&P 500 Total Return Index, which assumes reinvestment of dividends. It is provided for illustrative purposes only and is not investment advice and may not reflect results for any specific investment or individual. No withdrawals are included; actual results would be lower if withdrawals occurred. This example does not represent actual or future client performance and should not be viewed as a prediction or projection. It may not be relevant to your individual financial situation, objectives, or needs, and should not be relied upon as investment advice.
It is nearly impossible to consistently predict the best days and the worst days in the market. An analysis by J.P. Morgan illustrates that missing some of the market’s strongest days in the equity market reduced returns. This example highlights the challenges of market timing and the importance of maintaining a long-term perspective.
Source: J.P. Morgan Asset Management analysis using data from Morningstar Direct. Analysis is based on the J.P. Morgan Asset Management Guide to Retirement. Data as of February 28, 2025.
Disclosure: Past performance is no guarantee of future results. This chart is based on the historical performance of the S&P 500 Total Return Index, which assumes reinvestment of dividends. No withdrawals, fees, expenses, or taxes are included; actual returns would be lower after such costs. This scenario is provided for illustrative purposes only and does not represent actual or future client performance. It should not be viewed as a prediction or projection and may not be relevant to your individual financial situation, objectives, or needs.
A Disciplined Approach Amidst Uncertainty
Established in 1838, Welch & Forbes has managed numerous market cycles and helped clients achieve goals that span decades of planning and investing. We draw on this experience when managing investments during market uncertainty. The factors that can help are those integral to our portfolio construction methods and how we work with clients every day.
Maintain Goals During Times of Market Volatility
During volatility, it is wise to maintain goals and established asset allocation. Having an asset allocation framework helps portfolio managers respond opportunistically to market turbulence.
Our portfolio managers focus on investing in companies that we believe offer durable growth over time. Portfolio Manager Dan Gorman states, “When the market tide goes out, you don’t have to be swept completely out to sea if you own high-quality businesses. We seek to identify investment opportunities that we believe are well-positioned to navigate market cycles and offer the potential for long-term growth.”
Maintain Liquidity for the Unexpected
We believe it is prudent to maintain reasonable liquidity and cash reserve to provide adequate spending capacity. Life can generate a variety of surprises, including health problems, job changes, or other unforeseen cash requirements. Adequate liquidity prevents investors from needing to sell investment assets at depressed prices. Also, cash can be held in reserve for opportunistic investing if the prospect arises. Liquidity can be maintained with assets such as short-term bonds and money market funds. The cash balance that is needed depends on anticipated spending and risk tolerance.
Remain Disciplined Despite Market Fluctuation
Our Portfolio Managers believe it is prudent to approach investing with discipline and a long-term mindset. Market timing in volatile markets is risky and requires accurately predicting both when to exit and when to re-enter. Instead, maintaining focus on goals related to risk and return is likely to improve financial security in good times and bad. It is also crucial to regularly review objectives in light of changing markets. Investing in quality companies that offer a combination of growth and long-term stability can help portfolios be well-positioned for when the markets improve.
Working with an experienced Portfolio Manager may help investors remove emotion and establish a long-term disciplined approach, aligned with their financial objectives. To learn more about our investment process and services, please contact us. We would welcome the opportunity to have a conversation.
Definitions of Indices and Terms:
S&P 500 Index: is an unmanaged capitalization-weighted index of 500 large capitalization domestic stocks representing all major industries. It is not possible to invest directly in an index.
Disclosure: The information contained herein reflects the opinions of Welch & Forbes based on information believed to be reliable as of the date of publication. It is not a representation – expressed or implied – as to its accuracy, completeness, or correctness. It is intended for general informational and educational purposes only and does not constitute investment, financial, tax, or legal advice. This communication does not constitute a recommendation or solicitation to purchase or sell any securities or investment services.
Welch & Forbes is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Any strategies or investments referenced may not be suitable for all investors, and past performance is not indicative of future results. All investing involves risk, including possible loss of principal.
Readers should not infer or assume that any strategies or services described were or will be profitable or suitable for their individual objectives, financial situation, or needs. The implementation of any financial strategy should only be undertaken in consultation with your attorney, tax advisor and investment advisor. Diversification and asset allocation do not ensure a profit or protect against loss.
The views expressed by individual portfolio managers are their own and do not constitute personalized advice or reflect the views of all investment professionals at Welch & Forbes.