This image shows year-to-date 2025 returns as of 6/30/2025. U.S. large-cap stocks are up 6.2%. U.S. small cap stocks are down 1.78%. International developed stocks are up 18.32%. Emerging markets stocks are up 15.57%. U.S. short-term bonds are up 2.92%. U.S. aggregate bonds are up 4.02%. U.S. municipal bonds are down 0.35%. Global bonds are up 7.27%.
Looking only at the market returns from Q2 2025, one could easily assume it was a decently quiet quarter that trended upward as the dog days of summer neared. But to not offend our canine friends, it was in fact the dogs of war that were howling the past three months. Trade wars and real wars created neck-snapping and stomach-churning volatility. Markets plunged in the early days of April amid tariff-induced tensions that put domestic markets perilously close to bear market territory. International stocks, which had underperformed for 15 years, helped serve as a ballast in the market storm. Bonds, while not insulated completely from the volatility, held steady, as did private market investments. Then as quickly as the storm struck, it dissipated as the rhetoric de-escalated. These are interesting times in which we live indeed.
We’ve now officially eclipsed 30 significant market pullbacks over the last 15 years. Most seasoned investment professionals would struggle to recite half these events, and an even higher percentage would be embarrassed at how they responded or dispensed advice during them. These events are a gift to the prudent and long-term investor. They’re the only type of gift where the uglier the wrapping paper, the better the gift is. An ability to tax-loss harvest, rebalance, get money to work on the sidelines, fund the kids’ education accounts, further diversify concentrated stock positions or make a tax-efficient Roth conversion need to rule the day — not fear-based selling or doom scrolling, regardless of political leanings, that encourages us to crawl into our caves.
Cavemen survived, and thrived, because they were willing to exit their caves and face the harsh realities of their time; things haven’t really changed that much. Quicker food delivery and less itchy clothes are the only enhancements that really stand out. If something was studying us from Mars and noticed we went from walking while looking straight ahead to walking with our heads pointed squarely downward, glued to our phones, the only scientific assumption would be that we are devolving. Don’t devolve financially by letting fear take hold during inevitable periods of market volatility like the one we just experienced.
This table shows S&P 500 corrections of greater than 5% since the March 2009 low and the supposed “reason” for those corrections (such as disease, interest rates, Fed tapering fears, inflation, etc.).
While both trade wars and real wars adorn the events listed in the table above, markets fear the former more than the latter. Amid the industrialized massacre of WWI, the likes of which the world had never seen before, stocks had their strongest year ever in 1915. In a similar fashion, Israeli stocks are at all-time highs right now.
We said over and over that this recent bout of volatility was nothing new. However, the volatility associated with the volatility is something we’ve never seen before. As shown in the table below, the VIX (which really just measures how much investors are freaking out) had never dissipated so rapidly over a nine-week period previously. It’s really dangerous for blood pressure to change so rapidly, and we don’t advise it within markets either. What is a healthy prescription, though, is that markets are typically higher after these volatility declines and positive 100% of the time after three years. Actuarial tables say the average 100-year-old will live to be 103, so even if you’re 100 you have a time horizon to make this a good bet. Even more beneficial than living to 103 is that market returns over the subsequent 10-year periods have averaged more than 95% in total returns! Stay the course, as it’s a winning move.
This table shows the biggest nine-week VIX declines and forward S&P 500 total returns (1990-2025).
While returns above 95%, on average, over 10-year periods is great, the disciplined investor can stack the odds even more in their favor. The five cardinal rules most commonly followed by this sage crowd, and which are worth revisiting after market volatility like we just experienced, are as follows.
Rule #1
You’re rewarded more for being an owner than for being a lender. In the short run, bonds and cash can outperform stocks, but over the long run, they generally underperform. As shown in the table below, cash feels good because it’s positive 100% of the time, but in the long run, it’s only a gateway to poor returns that barely keep up with inflation.
(The saying “cash is king” deserves credit not for its validity but rather for how it propagates such a false narrative. “Cash requirements” for short- and mid-term cash flow needs are a common misnomer. There’s almost always a better option, like high-quality bonds or stable value instruments within 401k plans. Something else potentially unnecessary? Maintaining cash for a pending tax bill due to a large liquidity event, such as selling a business or selling a concentrated stock position with gains. Even then there’s almost always a better tax-optimized solution available — and failing to consider it can have immense negative total return consequences.)
This table examines portfolios consisting of 100% cash, 100% bonds, 100% stocks, and all stock/bond splits in 10% increments (90%/10%, 80%/20%, etc.). It then shows the annualized total return, real annualized total return 1928-2024 and the % positive annual total returns for each. It also shows the annualized volatility 1928-2024 and the max drawdown (annual total returns) for each. Overall, return and volatility both climb consistently with more stocks in your portfolio.
Rule #2
Markets go up more than they go down, but it’s a bumpy and uncertain ride. Three out of four years they go up, but one out of four years they go down. Often the downturns are sharp and severe, yet fleeting (think COVID or this last quarter) — but sometimes they’re prolonged and painful (think the dot-com bubble burst, which went on for three years). On any given day it’s a coinflip (although enough in your favor that would still make the largest casino in Vegas blush with envy), while for any given year it’s right at 75%.
Rule #3
Regular and, ideally, automated contributions are critical to building wealth and tilt the odds of successful outcomes even more overwhelmingly in your favor. (A recent Fidelity study found that the average American is now saving 14% into their corporate retirement plan based on total contributions from both themself and their employer. That’s fantastic! The only guarantee on a return is the 100% immediate return associated with employer matching contributions. Make sure you — and your loved ones — are optimizing this financial gift. Not accepting it is equivalent to refusing a raise. If you’re in a position to gift dollars to a loved one and coordinate to allow them to adjust their 401k savings at the same time, you’ve effectively doubled the gift to them, made that gift tax-efficient and made possible what Einstein called the eighth wonder of the world: compounding interest. Don’t question Einstein unless it’s about hairstyles.)
As seen on the graph below, when continuing to contribute to an investment portfolio on a regular basis, the odds of it becoming a successful exercise over any 10-year period are 98%! (We’re calling this a Clements Wager, as our own Jonathan Clements was the inspiration for this chart. He discussed this topic on a recent Signal or Noise podcast that was one of the better financial podcasts I’ve ever seen — a world-renowned financial columnist battling terminal cancer reflects on his key market and life lessons with our CEO and Chief Market Strategist. If you haven’t watched or listened to it yet, don’t miss out!)
This chart shows the percentage of the time a $100 contribution has had positive market returns, including an ongoing $100 monthly contribution. After one day it was 54%. After six months it was 72%. After one year it was 75%. After three years it was 85%. After five years it was 89%. After 10 years it was 98%. After 15 years it was 100%.
Rule #4
Picking individual winners is really, really tough. Take individual countries’ stock market performance in 2025. Show me someone who preached Poland, and we’ll applaud them. Show us someone who makes these grand proclamations regularly and has a batting average that wouldn’t get one sent down to the minors, and we’ll write their Nobel Prize endorsement. You have about equal odds of spotting bigfoot riding a unicorn on the streets of Atlantis as you do of picking country-by-country or stock-by-stock winners successfully over the long term.
(Hats off to Poland, as they’ve endured even though they’ve been geographically located at the messy crossroads between competing empires for thousands of years. Interestingly, Poland was the only European economy that didn’t dip into a recession during the 2007-09 global financial crisis. But its weighting to a properly globally diversified portfolio should be a fraction of a percent, because it makes up a fraction of a percent of global public market economic activity. It’s fantastic to see the eurozone up nearly 24% year to date, but that’s the first all-time high for Europe since 2000! Compare that to domestic markets that have had nearly 400 all-time highs over the same period. The point is it’s been appropriate to maintain a properly weighted allocation to Europe over the past 15 years even while they dramatically underperformed domestic markets. Chasing them now would be as foolhardy as chasing Russian stocks 10 years ago, earnings-impaired technology stocks 25 years ago or even disco dancing attire in the early 1980s.)
Rule #5
Focus on what you can control and tune out the noise — which is a lot harder than it sounds. Tariffs, trade wars and targeted military strikes are completely out of your control and completely useless in investment decision-making (actually, the data would say they inject poison into investment decision-making). On the other hand, targeted spending levels and tax optimization (e.g., Roth vs. traditional 401K contributions, proper management of concentrated stock, proper tax optimization based on current corporate and estate planning rules and regulations, etc.) are 100% within your control.
This table shows 2025 total returns for global equity ETFs (measured in U.S. dollars). Two-thirds (34) were positive in the double digits, another 11 were positive in the single digits, and just six were negative (New Zealand, Malaysia, Indonesia, Saudi Arabia, Turkey and Thailand).
While unpleasant in real time, periods of market volatility like the one we just experienced offer a fantastic reminder to focus on what we can control instead of what we can’t. By sticking to these principles that are as old as markets themselves, one can truly enjoy the dog days of summer no matter what kind of howling commences.
