Is Volatility the Secret Ingredient to Stock Market Success?

2025 has been off to an eventful start for the markets. After a lengthy period of below-average volatility, investors were reminded that stocks can move swiftly. First, as China’s DeepSeek rattled leading AI names—then, more dramatically, as uncertainty brewed over the impact of President Trump’s economic policies on companies around the world.

While moments like these are unsettling, they also reinforce the need to maintain a long-term view. Bad news doesn’t last forever. And the ability to endure short-term volatility is crucial for investors seeking to reap the substantial rewards that come from the compounding of stock returns over time. 

 

Turbulence Is Actually the Norm

Today’s volatility hasn’t been too far out of the ordinary in historical context. It’s not uncommon for US stocks to suffer dramatic intra-year drawdowns, even as they slowly grind higher over time.

In any given calendar year, the broad market has experienced an intra-year peak-to-trough drawdown of 14%, on average. Despite those disruptions—whether caused by swooning sentiment or actual economic weakness—the S&P 500 finished higher in 36 of the past 44 years (Display). 

 

Finding Courage in the Chaos

Throughout history, whether it’s the ripple effects of widespread fear or the tectonic shifts of events like the Great Financial Crisis, economic downturns have tested investors’ resolve. Yet, the enduring lesson is unmistakable: those who maintain their composure and stay the course amid turbulence often reap significant rewards in the long run.

Even more so, those who seize the opportunity to act strategically during these challenging periods can gain an even greater edge. On the other hand, those who succumb to the anxiety stirred by alarming headlines and short-term market declines risk missing out on the powerful, compounding growth that the market has offered over the long haul.

To put it more plainly: the reason you earn higher returns from holding stocks over the long term is precisely because of their volatility. If stocks were more stable, the rewards for investing in them would be much lower. It’s this very volatility—coupled with the courage and capacity to endure it—that paves the way for the most substantial return potential of any liquid asset class over time (Display). 

 

The Power of Staying Invested

This has been an abnormally rough start to the year for the US equity market. In the two days following “Liberation Day,” the market fell by 4.8% and 6%. Over the past 100 years, we’ve only seen consecutive-day declines of 4% or more about a half dozen times. April’s moves certainly merited the attention they received.

Meanwhile, just a week after the official announcement, the market experienced a remarkable surge of 9.5% following news of at least a partial reversal in tariff policy. Such a dramatic daily return is a similarly rare event, again having occurred only about a dozen times in the market’s history.

Although the future of tariff talks and policies remains uncertain, history offers a comforting perspective: this, too, shall pass. Typically, today’s market downturns lay the groundwork for tomorrow’s gains. Investors who embrace this historical insight can find reassurance in sticking to their long-term strategic asset allocations. Coupled with diversification, which helps cushion against unforeseen shocks, this approach is among the most effective ways to grow your wealth in the long run.