Stay The Course

Stock market volatility has increased during the first few months of 2025 due to a combination of economic and political factors, leading to significant client concern about how their investments are holding up during this period of disruption. After strong market gains in 2023 and 2024, it’s natural to wonder what’s next. We understand that uncertainty can feel unsettling, but history has shown that short-term fluctuations are part of a long-term investment journey.

As evidence-based investors, our Team at Flourish uses 100+ years of historical data on stocks, bonds, and the economy to help us understand the current environment while setting expectations for the next 12 to 24 months. Our goal is to put current events and market themes into perspective relative to long-term data. For example, stock market corrections (defined as a 10% drop from previous highs) happen on almost an annual basis while bear markets (defined as a 20% drop from previous highs) happen every 4 years. We are currently at the 5-year anniversary of the COVID Crisis Bear Market with a stock market drop of 34% in less than a month. There was also a Bear Market in 2022 due to a combination of the Russian invasion of Ukraine, supply chain shortages, and high inflation rates. Although that doesn’t mean we are necessarily due for another Bear Market in 2025, it wouldn’t be outside the realm of historical data or expectations.

There are concerns that the dynamics driving uncertainty about the fate of the stock market are different this time because they reflect a combination of political, social, and economic themes. Market history indicates that each market cycle has its own unique dynamics while also confirming that Bull and Bear Markets have a lot of commonalities over time. For example, Bear Markets have happened an average of once every 4 years with an average loss of 36% and a time to recovery of 13 months. On the other hand, Bull Markets last over 5 years with average cumulative gains of 180%. Staying invested has been a key factor in benefiting from long-term market growth, even during periods of volatility.

We expect to see a fair amount of week-to-week volatility in the Stock market throughout 2025 as markets and economies adjust to new policies and initiatives from the current administration. Market prices have yet to fully reflect potential changes in policy, interest rates, and global economic trends, as many details remain uncertain. Our approach through the expected ups and downs of the market is to maintain broad diversification while closely monitoring client portfolio allocations. The past couple of months have demonstrated the benefits of diversification with gains of 12% from International Stocks, 6% from Emerging Markets, and 2.5% from Core Bonds. We are also reminded of the “most anticipated/predicted recession” ever in 2023 which never came to fruition. Based on the historical data and global economic forces, our approach is to Stay The Course by maintaining broadly diversified portfolios, being very intentional about where we are willing to take market risk, and ensuring that cash flow plans are well-positioned for the next 2 to 3 years.

We understand that the disruptions of the current environment will create high levels of concern about how your investments are positioned. This is an opportunity to remind our clients that we are happy to schedule investment update meetings at your request and will use that time to review how your portfolio is positioned while adding historical context to current market themes. Please feel free to reach out to us in these turbulent times as an important aspect of our long-term planning relationship is to support clients through short-term disruptions and confirm whether or not your plan continues to be on track for success.

What Can Investors Do?

Rather than trying to predict the next market move, a more effective approach is focusing on what’s within your control:

✅ Stay Invested – Market history shows that investors who remain disciplined tend to see better long-term results than those who react to short-term news.
✅ Diversification Matters – Recent market shifts highlight the benefits of spreading investments across different asset classes, including international stocks and bonds.
✅ Align Investments with Goals – Your portfolio is designed to support your long-term financial goals, not just short-term market conditions.