By: Joseph Goldy, CFP®, CDFP®
Turn on financial news on any given day, and you're likely to hear words like "plunge," "surge," or "turmoil." Markets move — sometimes dramatically — and those movements can trigger a visceral emotional response, even for the most disciplined investors. But here's what decades of financial history consistently show: short-term volatility is not your enemy. In fact, it's an unavoidable feature of building long-term wealth.
What Volatility Actually Is
Volatility simply refers to how much and how quickly the price of an asset fluctuates over a given period. A market that rises and falls sharply within days or weeks is considered highly volatile. A savings account that earns a steady, predictable rate is not volatile at all — but it also won't grow your wealth meaningfully over time.
That tradeoff is the core insight most investors struggle to internalize. The potential for higher long-term returns comes precisely because you accept the discomfort of short-term price swings. You are being compensated for tolerating uncertainty. Remove the volatility, and you generally remove the growth potential along with it.
The Gap Between Perception and Reality
When markets drop 10%, 15%, or even 20%, it feels permanent. Our brains are wired to treat losses as threats, which made perfect sense for our ancestors navigating physical dangers, but it works against us in an investment context. Research in behavioral finance consistently shows that investors feel the pain of losses roughly twice as intensely as they feel the pleasure of equivalent gains — a phenomenon known as loss aversion.
This emotional asymmetry leads to one of the most damaging mistakes investors make: selling after a decline and waiting for things to "calm down" before reinvesting. The problem is that by the time things feel calm, markets have often already recovered — and the investor has locked in real losses while missing the rebound. A Dalbar study consistently finds that average investors significantly underperform the very funds they invest in, largely due to poorly timed buying and selling driven by emotion.
Time Horizon Changes Everything
Consider the S&P 500's historical performance.
In any given single year, stocks have finished negatively roughly 26% of the time. That's more than one in four years ending in a loss — hardly comforting for someone focused on the short term. But extend the window to any rolling 10-year period, and the picture changes dramatically. Historically, there are very few 10-year stretches where a diversified equity portfolio ended in negative territory. Extend to 20 years, and those instances become nearly nonexistent.
Your time horizon is your single most powerful tool for managing volatility risk. A retiree drawing down assets this year absolutely must think differently about risk than a 45-year-old still accumulating wealth. A well-constructed financial plan accounts for this explicitly — matching the risk and liquidity of your investments to the timeline and purpose of each dollar.
The Role of a Financial Plan
This is exactly why a comprehensive financial plan matters so much more than any market forecast. A plan gives context to market movements. When you know that stable assets cover your near-term cash needs, the fluctuation in your long-term equity portfolio becomes less frightening — because it's designed to fluctuate. That money isn't going anywhere for 15 or 20 years. It has time to recover, grow, and compound.
At HIGHLAND, we stress that a good plan also builds in guardrails: diversification across asset classes, rebalancing strategies that take emotion out of the equation, and clear spending policies that don't force you to sell equities at the worst possible time. Think of it as the difference between watching a storm from inside a well-built house versus standing in an open field. The storm is the same either way. Your preparation determines the outcome.
Staying the Course Is a Strategy
There is a temptation to view "doing nothing" during a volatile market as passive or even irresponsible. The reality is the opposite. Maintaining discipline, sticking to your allocation, and trusting the long-term trajectory of a diversified portfolio are active, intentional choices — and historically, they've been among the most effective available.
Volatility will always be part of investing. The goal isn't to eliminate it; it's to understand it well enough that it no longer has the power to derail your decisions.
Joseph Goldy, CFP®, CDFA ®, is a wealth advisor and CERTIFIED FINANCIAL PLANNER™ at Highland Financial Advisors, LLC, a fee-only fiduciary wealth advisory firm based in Wayne, New Jersey.
Joe specializes in working with newly independent women because of divorce or losing a spouse. He understands firsthand the value of having a clear financial picture pre- and post-divorce and a plan to restate goals as a single person. When he is not helping clients, Joe enjoys spending time with his two sons outdoors and volunteering to help raise money for Type 1 diabetes organizations.
The foregoing content reflects the opinions of Highland Financial Advisors, LLC, and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions, or forecasts provided herein will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns.
Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act as they have in the past.
The above article was written with the assistance of artificial intelligence (AI).