Navigating market volatility and uncertainty

These are turbulent times for investors. Unclear interest rate outlook, inflation flare-ups, recession fears, and geopolitical conflicts continue to rock market sentiments around the world.

Boom and bust cycles have long been a feature of investing. Resist the urge to ditch your investment strategy or sell. Staying the course during big declines can help you reap the long-term benefits of the markets.

Data shows that those who stick with an investment plan at a risk level suitable for their goals — while remaining diversified, strategic and passive in asset allocation, and at a low cost — stand a much better chance of success than others who try to speculate and time their exposure to markets, geographies, and sectors.

Here are seven charts illustrating why responding to market corrections with a rational, reasonable, and reliable approach will help us find peace of mind in difficult times.

Regular, disciplined investments make sense in a downturn

When markets are down, investing a small amount regularly is better than doing nothing at all.

Dollar-cost averaging (DCA) — which refers to periodic, recurring investments of a fixed amount into your portfolios — helps to minimise the impact of volatility. 

This is because you buy more when market prices are low and less when prices are high. DCA can work to your advantage during a downturn, as you ride out the lows to enjoy the recovery later.

Let’s take a look at the stock market crash in the early 2000s when the dot-com bubble burst. If you had followed a DCA schedule to invest in global equities, by investing $1,000 every month over 70 months between 31 Mar 2000 and 31 Dec 2005, your return would have steadily accumulated to about 28% by the end of the period.

That far exceeds the paltry interest rates you would have earned if you had simply left that money in a savings account and decided not to invest during this decline. Savings deposit rates offered by banks in Singapore were 1.34% in January 2000 and had tumbled to 0.23% by the end of 2004 and 0.26% in 2005.

Let’s say that instead of following a DCA schedule, you made a one-off investment of $70,000. Under the best possible case, if you were lucky enough to buy global equities when they were at their cheapest on 30 Sept 2002, your return would amount to 80% by the end of 2005. 

Of course, the reality is that it is incredibly difficult to time the market and enter at the absolute lowest point. Even the so-called experts have been proven to be bad at it. 

Assuming you invested the lump sum a tad later, on 30 June 2003, because you hesitated while trying to time your entry, the return would be lower at 50.5%. That is from missing just two periods of rebounds (month-on-month increases of 7.4% and 5.4% in October and November 2002, followed by 8.9% and 5.7% in April and May 2003). 

Again, the caveat here is that the chances of accurately timing even this investment are very slim.

The worst-case scenario of a $70,000 lump-sum investment, assuming you bought at the highest price on 31 March 2000, would lead to a negative return of 4.3%. 

Note that these examples assume that the lump-sum investor held on throughout the market recovery until the end of 2005. 

In practice, some individuals who try to time the market may also flee and sell at smaller, short-term price dips. Doing so would lose them a bigger chunk of their investments over this period.

DCA often beats lump sum investing during market routs

Research has found that trying to time the markets during a downturn usually leads to poorer outcomes. Instead, a DCA strategy can be especially helpful when we find ourselves in a declining market. 

As this chart shows, you are better off using a DCA strategy when averaging into a falling market, rather than putting all your money to work right away via a lump sum investment. The growth of a DCA portfolio – from buying into US stocks over 24 months – beats that of a lump sum investment whenever the market crashes, such as in 1974, 2000, and 2008.

The discipline and routine of investing our money over the long term also forces us to adopt a passive investment strategy that removes the emotional element so we are not tempted to jump in and out of the market.

Don’t miss out when the market recovers

Throughout market history, declines have been common and temporary. 

For instance, the S&P 500 Composite Index – a key benchmark of the US equity market, as it tracks 500 large-cap American companies – has seen a 15% drop roughly once every three and a half years, with an average length of 262 days for each decline. But recoveries – and often strong ones – have followed all of these downturns.

The chart below illustrates the power of staying invested. In a hypothetical scenario, an investor sold off US stocks during times of extreme volatility during the 2008-2009 downturn, and then tried to time the market by jumping back in again when he spotted signs of improvement.

Missing even the five best days of market recovery would shave 37% off the value; the more missed “good” days, the greater his loss.

However, if he had remained invested from 1990 to 2023, a $1,000 investment in the S&P 500 stocks would have grown to US$27,221, excluding dividends, at the end of the period. 

Stocks can rebound after sharp declines

Historical data has shown that following steep declines, US stock gains often add up. 

An example is the Fama/French Total US Market Research Index – a broad market index that has been tracking data in the US for almost a century. The index largely posted positive returns over the one-year, three-year, and five-year periods after 10-30% market declines.

This pattern is reflected clearly in the index’s cumulative returns, as seen in the chart below. For instance, US equities that made up the index bounced back by 11.8% on average just one year after a market decline of 10%. After five years, the stocks’ average cumulative returns exceeded 50%.

Positive returns in equities are more likely over time

Typically, the longer we stay invested, the higher our chances of reaping positive returns.

If you had invested in top US stocks between February 1993 and February 2025 and held your investment for only one month during the 32 years, there was a 66% chance you would make a positive return, and correspondingly a rather hefty 37% chance of getting a negative return.

But if you had extended the investment holding period to a decade, the likelihood of a positive return grew to 90%, while that of a negative return shrinks to 10%.

Diversify away risks and stay exposed to growth

Don’t put all your eggs in one basket. Although diversification does not ensure a profit or guarantee against a loss, it can potentially improve returns for the level of risk you are comfortable with, enable your investment portfolio to weather market stress, and smooth out returns over market cycles.

As the chart below illustrates with a trio of hypothetical portfolios, diversification can come in handy in both up and down markets.

It helped contain overall portfolio losses during the 2008-2009 financial crisis when many types of investments were declining in value. And when the market later recovered, diversification also helped the portfolio achieve gains.

The graph shows the hypothetical value of assets held in untaxed accounts of $100,000 in an all-cash portfolio; a diversified growth portfolio of 49% US stocks, 21% international stocks, 25% bonds, and 5% short-term investments; and an all-stock portfolio of 70% US stocks and 30% international stocks.

Through the six years from 2008 to 2014, the diversified growth portfolio provided a significant percentage of the all-stock portfolio’s returns, but with smaller price swings. Like the all-stock portfolio, it also easily outpaced returns from the all-cash portfolio.

This further illustrates why timing the market should not be our goal. Time in the market is key.

At Endowus, we advocate staying globally diversified in a variety of assets including equities and bonds, and also diversifying your portfolio within each type of investment. 

‍Even the worst investor can win in the long run

We tend to feel the greatest loss aversion instinct to sell during the steepest drops. But those are also times when we could have missed the biggest gains.

Even if you were the worst investor in the world – with the worst possible timing, always buying at the top of the market just before it crashed – you still would have done all right if you had stayed diversified and let the power of compounding work for you over the long run.

You would have earned an annualised return of about 8% and a total return of more than 1,400%, as this chart shows.

You may have questions such as: “Is now the time to buy?”; “When should I buy the dip?”; “How much further down is the market going to go?”

If you have cash on the sidelines, here’s an option: try to buy throughout the dip, rather than trying to catch the bottom of the dip.

While none of us can predict what the markets will do in the short term, we are confident in the long-term resilience of our investment philosophy.

At Endowus we believe in giving investors broad exposure to global markets in a strategic and passive asset allocation, as opposed to a tactical — or short-term and opportunistic — allocation. It is also unlike an active allocation that most of our competitors espouse. Our allocation strategy is essentially to largely track the global indices over time so that your wealth will also grow steadily over time.

Learn more investment lessons from our CEO, Gregory Van here.