The Power of Long-Term Thinking in Volatile Markets

It’s a feeling most CRNAs encountered this past April. During the monthly net worth update, you discover your net worth decreased despite working full time hours. This is a horrible, sickening feeling. The media is throwing out negative headlines left and right as the stock market rapidly declines.

Tariff news this. Market crash that. Sell, sell, sell…

This is a gut-wrenching position to find yourself. 2025 was the first time the TFC household noted a solid six-figure drop across the TFC investment accounts. This transpired over a matter of weeks. And yes, it was brutal.

It even crossed my mind more than once to liquidate a good portion of the portfolio to stop the hemorrhage.

Take a deep breath. Remember your data-driven plan. Market downturns are unsettling, but they are a normal part of investment. Normal market movement. The key to weathering these storms isn’t a secret formula or insider knowledge-it’s the power of long-term thinking.

Understanding Market Volatility

Market volatility refers to the degree of price fluctuations in the market over a specific period. This includes the frequent and sometimes dramatic ups and downs in the value of investments. Swings can be caused by economic cycles, changes in interest rates, political events, or even shifts in investor sentiment. While volatility grabs headlines, it's important to remember that downturns are not only common, but they’re also expected.

Historically, once per year the stock market experiences a 10% decrease known as a correction. A more drastic 20% decrease known as a bear market occurs every 3-4 years. These drawdowns may be prolonged due to economic conditions or negative investor sentiment. Over time, however, marks have always recovered and gone on to achieve new all-time highs.

The Pitfalls of Short-Term Thinking

When the floor gives out, it’s easy to let fear be the driver of decision making. Many investors panic and sell their holdings hoping to avoid further losses. Unfortunately, this short-term thinking can be costly.

Consider this, if you sold your stocks during the 2008 financial crisis and waited too long to reinvest, you would have missed the market’s rapid recovery and the tremendous gains that followed.

Studies show that missing the 10 best days in the market over the past 20 years would cut your returns in half. 9.8% to 5.5% annualized. The best days in the market are often tucked between the worst. Without enduring the worst, you won’t realize the best.

Short-term thinking leads to emotional decisions which often lead to poor investment outcomes.

Many financial institutions sell their services by noting that self-managed accounts only return 2% annually. Yep, underperforming inflation. They say, “give me 1.5% of assets under management (AUM) and invest in these expensive proprietary funds and you can return 5-7% annually. Far better than self-managing.”

There is some truth to this. I fully believe their data is accurate. What they fail to compare to is a disciplined investor. An investor who constructed a data-driven plan and adhered to that plan for a career. These plans are what I write about on The Financial Cocktail.

Of note, past performance does not guarantee future returns, but data surrounding the broad stock market is as close of a guarantee as we have. It’s the fundamental belief in the capitalism machine in the United States. Your bet on the broad market is a bet on the prosperity of capitalism.

The Benefits of a Long-Term Perspective

Long term thinking is your greatest ally during turbulent times for these reasons:

ONE, compounding returns. The longer you stay invested, the more your money grows through compounding interest. The interest on your interest.

TWO, market recovery. No matter the severity of the downturn, markets have always bounced back. After every crash from the Great Depression, to the.com bubble, to the 2008 financial crisis, to the COVID-19 pandemic, buy and hold investors have seen their portfolios recover.

Over the past couple decades, aggressive monetary policy (generally monetary easing) has morphed the once common “U-shaped” market recoveries into “V-shaped” recoveries expediting the markets recovery.

Here are the past 3 significant market bear markets:

THREE, money is made during downturns. Sure, your invested capital takes a hit, but market pullbacks present a great buying opportunity for the buy-and-hold investor.

Those who are still working and continue to dollar-cost average into the market will have dollars invested all along the market pullback. This means those investments will make gains. Your dollars invested during the COVID-19 pandemic would have noted 20, 30, or 40% returns within a matter of months IF you continued to DCA throughout the bear market.

Drawdowns, especially prolonged drawdowns are especially difficult for those in retirement and dependent on their investments.

FOUR, taxes. Gains (and losses) are realized upon the sale of an equity. Recent investments will likely be sold for a loss. However, longer term holdings may be sold for a gain and create a taxable event. This can be desirable at times, but generally not for the mid-career investor.

Strategies to Cultivate Long-Term Thinking

How can you train yourself to have the mental fortitude to adhere to the plan, especially when the market is in chaos? When every headline tells you the market is heading to 0! Here are some practical steps.

Set clear goals. Define your investment objectives and time horizon. Keeping your goals in mind helps you look past the short-term noise and maintain focus on the grand objective.

Create a data-driven plan. It's impossible to know what the market will do tomorrow, next year, or 10 years from now. We have over a century of stock market data that we can use. At this time, the data says to be a buy and hold investor in low-cost, passively managed broad market index funds.

Review your plan every month by checking your net worth statement. Don't get caught up with the day-to-day market volatility. Focus on the month to month, and year over year changes. Are your dollars going into the right accounts? Is your asset allocation appropriate? Are you on track to meet your goals?

Automate your investments. It's optimal to use a dollar-cost averaging strategy when investing in these index funds. I'm currently investing every Monday. Regardless of how the market opens the week, I'm investing the same amount without hesitation. It's my data-driven plan that allows me to confidently execute. There's no emotion involved in the equation.

Practical Tips for Staying Calm During Downturns

Ignore the media. Financial headlines are designed to grab attention, not to offer balanced advice. Negative headlines grab six times the attention of positive ones. This is why even as the market is making new highs, there are some media outlets preparing you for the next crash. It's great to keep a pulse on the market, but don't let the media dictate your decisions.

Focus on what you can control. You can't control the market. The market responds according to Murphy's law. Focus on what you can control optimize your income, spending, and investing choices.

Seek support. If you created a data-driven plan and find yourself questioning your direction, reach out to somebody. It's okay to ask a trusted source their opinion. It's okay to ask the community what they are doing. If the alternative is making rash, emotional decisions, an overpriced assets under management financial advisor might be for you.

Achieving a 5% annualized return with an AUM advisor is inferior to the 10% you could achieve self-managing, but far better than a 2% return driven by emotion.

Finding others that self-manage their accounts using data-driven strategies are a great resource. Take full advantage of the community resources prior to becoming lost in the short-term buzz.

Conclusion

Market drawdowns are inevitable, but they don't have to derail your financial future. I can conservatively expect another 10 bear markets in my investing timeline – each lasting 1 year.

By embracing a long-term perspective, you can ride out the storms and come out stronger on the other side. Don't be one of those investors who see a 2% annual return over a career. Be the investor that sees market returns -- for better or worse.

Always remember that market downturns are temporary, but discipline and patience pay off for a lifetime. So, the next time the market takes a dive, take a breath, review your plan, and stay focused on your long-term goals. Your future self will thank you.

Ready to recommit to your long-term strategy? Share your thoughts or questions in the comments below! Thanks for reading.