markets & economy | april 14, 2025
Market Volatility Explained: Five Charts for Better Insight
Strategic investing can help you confidently navigate the future.
Key Insights
Maintaining a long-term perspective and optimizing your portfolio allocation can help you ride out market ups and downs.
Market declines can be unsettling, but historical data indicate that the general trend has been upward over extended periods.
Managing risk through systematic investing can help position your portfolios to benefit from market recoveries.
In the current financial environment, it's common to experience a range of emotions. Focusing on your long-term plan and asset allocation can help you manage risk and enhance growth potential. And being informed empowers you with the knowledge and confidence to make thoughtful decisions.
1. Stay invested for the long haul
Staying invested through market cycles can lead to higher returns, while exiting the market during downturns can be costly. Consider three investors who each started with $10,000 invested in the S&P 500 Index over the past 20 years.
Investor 1: Stayed invested and ended up with $61,750.
Investor 2: Missed the 10 best days, resulting in $22,871.
Investor 3: Missed the 20 best days, ending with a balance of $9,724.
These figures underscore the risk of trying to time the market. Short-term investors who mistime their market entries and exits could miss the best days and leave substantial returns on the table. By focusing on long-term goals and adopting a strategic allocation approach, you may benefit from growth over time.
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Staying invested produced a bigger balance over the long term
(Fig. 1) $10,000 invested in the S&P 500 Index (January 1, 2005–December 31, 2024)
Sources: T. Rowe Price, S&P. See Additional Disclosures.
Past performance is not a guarantee or a reliable indicator of future results. It is not possible to invest directly in an index. Graph is shown for illustrative purposes only.
2. Keep a long-term perspective
Historical data show that markets have generally trended upward over time, despite periodic downturns. The chart below illustrates two decades worth of stock and bond market performance. Here, we see the potential benefit of diversification at work. For instance, a hypothetical $10,000 investment in a diversified portfolio of stocks and bonds from 2004 to 2024 would have generated higher returns than an all-bond or all-cash portfolio with less volatility than an all-stock portfolio. The key is to avoid making hasty decisions based on short-term market fluctuations.
Growth of a hypothetical $10,000 investment over time
(Fig. 2) As of December 31, 2024
Over a 20-year period, stocks and bonds have each experienced their own periods of dips and rallies—though, ultimately, they’ve continued on an upward trajectory over time.
Sources: T. Rowe Price, created with Zephyr StyleADVISOR; S&P; Bloomberg Index Services Ltd.; and FTSE. See Additional Disclosures.
*Past performance cannot guarantee future results. It is not possible to invest directly in an index. Chart is shown for illustrative purposes only. Stocks: S&P 500 Index, Bonds: Bloomberg U.S. Aggregate Bond Index, and Cash: FTSE 3-Month U.S. Treasury Bill Index. As of December 31, 2024.
“Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend this product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to this product.
3. Resist short-term bias
Don’t let short-term upsets dampen your potential for long-term growth. While market downturns can lead to short-term losses, the picture changes with a long-term perspective. The chart below demonstrates the direct correlation between long holding periods and reduced portfolio volatility.
Bottom line: Remaining invested through downturns and corrections may allow you to take advantage of long-term growth potential.
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Rolling 15-year periods deliver positive returns despite yearly market fluctuations
(Fig. 3) S&P 500 Index, as of December 2024
Sources: T. Rowe Price, created with Zephyr StyleADVISOR, and S&P. See Additional Disclosures below. Price return calculations include dividends and capital gains. Annual returns beginning in calendar year 1994. Rolling 15-year data beginning in 1979. Past performance cannot guarantee future results. It is not possible to invest directly in an index. Chart is for illustrative purposes only.
4. Manage risk while pursuing returns
When markets behave erratically, it can be tempting to flee to cash or make decisions driven by emotions. Instead, continuing to invest a fixed amount of money—aligned with your asset allocation—at regular intervals, a strategy known as dollar cost averaging, can help keep your savings on track. This steady approach smooths out your average purchase price and helps you stay invested during periods of market volatility.
Investing on a regular basis
(Fig. 4) Consider this example of investing a constant dollar amount over the ourse of a year. The share price fluctuates from a high of $22 a share to a low of 10 a share. At the highest price point (March), nine shares are purchased with the $200 monthly investment. At the lowest price point (July), the same $200 buys 20 shares more than twice the amount bought in March. Accumulating more shares when the price is lower means benefiting when the market and the price of the investment rebound.
Investing a constant dollar amount, also known as dollar cost averaging, cannot assure a profit or protect against loss in a declining market. Since such a plan involves continuous investment in securities regardless of fluctuating price levels, investors should consider their financial ability to continue purchases through periods of low and high price levels. This is a hypothetical example and is for illustrative purposes only. Number of shares is rounded to whole numbers and may not equal total shares due to rounding.
5. Pause, and revisit why you’re investing
In downturns, focus on your goals, not the noise. Selling during a downturn can lock in losses and cause you to miss potential gains. Historical data show that after market corrections, stocks have typically recovered within months. Staying the course could position your portfolio for long-term gains as markets rebound.
The graph below demonstrates that after market corrections (defined as a drop of at least 10%), the stock market typically recovered lost ground after three to six months. For two of the three bear markets (defined as a drop of at least 20%), stocks were back to their prior levels within a year.
Recent bear markets and corrections
(Fig. 5) Occurring between January 2004 and December 2024
QE = quantitative easing.
Reflects an investment of $1,000 on December 31, 1991. There were no corrections or bear markets between 1991 and 1999. This graph does not show the bear market of the tech bubble crash (2000–2002) or correction period pre-Iraq war (2002–2003). Drop is based on the percentage drop from the highest market index value just prior to the correction to the lowest market index value. Recovery is defined as the length of time for the market to return to the previous highest market index value, rounded to the nearest number of months.
Past performance cannot guarantee future results.
Sources: T. Rowe Price and S&P. See Additional Disclosures.
Looking ahead, extreme market fluctuations may continue. However, these investing tips can help you manage your financial plan with confidence: Focus on your long-term goals, stay invested, and embrace diversification.
Important Information
All investments are subject to risk, including possible loss of principal.
Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall. Investments in high yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt. Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk, such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. Index performance is for illustrative purposes only and is not indicative of any specific investment. Its performance does not reflect the expenses associated with the active management of an actual portfolio. It is not possible to invest directly in an index.
Additional Disclosures
Copyright © 2025, S&P Global Market Intelligence (and its affiliates, as applicable). Reproduction of the S&P 500 Index in any form is prohibited except with the prior written permission of S&P Global Market Intelligence (“S&P”). None of S&P, its affiliates or their suppliers guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. In no event shall S&P, its affiliates or any of their suppliers be liable for any damages, costs, expenses, legal fees, or losses (including lost income or lost profit and opportunity costs) in connection with any use of S&P information.
S&P — The “S&P 500 Index” is a product of S&P Dow Jones Indices LLC, a division of S&P Global, or its affiliates (SPDJI), and has been licensed for use by T. Rowe Price. Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (S&P); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones). T. Rowe Price’s product is not sponsored, endorsed, sold, or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product, nor do they have any liability for any errors, omissions, or interruptions of the “S&P 500 Index.”
Bloomberg—“Bloomberg®” and Bloomberg indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by T. Rowe Price. Bloomberg is not affiliated with T. Rowe Price, and Bloomberg does not approve, endorse, review, or recommend this product. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to this product.
FTSE/Russell—Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). © LSE Group 2025. FTSE Russell is a trading name of certain of the LSE Group companies. “FTSE® and Russell” are trademarks of the relevant LSE Group companies and are used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company that owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor, or endorse the content of this communication.
These hypothetical portfolios combine stocks and bonds to represent a range of potential risk/reward profiles. For each allocation model, historical data are shown to represent how the portfolios would have fared in the past. Figures include changes in principal value and reinvested dividends and assume the portfolios are rebalanced monthly. It is not possible to invest directly in an index.
Past performance cannot guarantee future results. This material is provided for informational purposes only and charts are shown for illustrative purposes only and do not represent the performance of any specific security or T. Rowe Price product.
This material is provided for informational purposes only and This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
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