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Return Doesn’t Come Without Volatility

By Jim Shellenberger, CFA, CFP®

Investing is often compared to a journey, and like any meaningful journey, it’s rarely a smooth, straight path. Along the way, there will be bumps, detours, and unexpected turns that challenge even the most seasoned travelers. The same can be said about investing – market volatility is an inherent part of the investment process, and even in years when the markets deliver positive returns, intra-year drawdowns are common. Focusing on the discomfort of these short-term declines can be tempting, but successful investing requires a long-term perspective. In this commentary, we’ll explore how volatility shapes the investment experience and why staying the course through uncertainty is essential for achieving your financial goals.

Long-Term Focus, Short-Term Fortitude

Building on the idea of volatility acceptance, it’s important to recognize that short-term volatility is often a reflection of market sentiment, meaning that emotions, news, or speculation drive daily movements. As Benjamin Graham famously stated, “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.” This means that while markets may fluctuate based on popularity or short-term opinions, over time, they reflect the true value of businesses and their underlying fundamentals. Staying invested through these periods of turbulence allows investors to benefit from the long-term growth and resilience of the market, ensuring that the “weight” of quality investments ultimately prevails.

The chart above illustrates the market’s inherent volatility by showing S&P 500 intra-year declines versus calendar-year returns from 1980 to 2024. While the red dots highlight the steep intra-year drawdowns – averaging 14.1% – the gray bars demonstrate that annual returns were positive in 34 of the past 45 years. This striking contrast underscores the importance of maintaining a long-term perspective. Even in years with significant market declines, the market often recovered by year-end, rewarding those who remain invested. It is easy to forget the intra-year declines during the years the S&P 500® has ended up, but there is almost always volatility, and expecting and understanding it makes it easier when it arrives. The key takeaway is clear: while short-term volatility can feel unnerving, it is not indicative of long-term performance. By focusing on the bigger picture, we can better navigate the temporary turbulence and stay on course toward achieving our financial goals.

How it Looks vs. How it Feels

The first chart above illustrates what a 10.9% annualized return looks like on a smooth, compound interest curve, while the second chart reveals what it truly looks like in real life. The second chart displays the actual annual returns of the S&P 500® since 1970, which collectively resulted in an annualized return of 10.9%. That same 10.9% annualized return was applied to the compound interest graph to show the growth of $100 over time, presented as a steady upward trajectory. While both charts ultimately reflect the same outcome, the first chart omits the critical reality of volatility. This omission is significant because when we see an annualized return for a given time period, our brains tend to visualize the smooth progression of the first chart rather than the jagged path of the second.

The reality is that if someone had invested $100 in 1970 and never added another dime, they would have $30,163 at the end of 2024. Despite the ups and downs along the way, the power of compounding demonstrates how consistent exposure to the market can work out in the long run. Recognizing and preparing for this inherent volatility is essential for staying committed to a long-term investment strategy.

Investing is a journey filled with twists and turns, where the path to long-term success is rarely smooth. As we’ve seen, markets experience volatility, both in the form of intra-year declines and year-to-year fluctuations, yet history shows that staying the course can yield rewards over time. While it’s easy to focus on the short-term ups and downs, the true power of investing lies in remaining disciplined and committed to your long-term goals.

By understanding that volatility is a natural and expected part of the process, we can avoid making emotional decisions during challenging periods. The market may feel like a “voting machine” in the short term, influenced by noise and sentiment, but in the long run, it operates as a “weighing machine,” rewarding patience and consistency. The key takeaway is simple: stay invested, focus on the long-term horizon, and trust that the disciplined approach of riding out volatility will lead to growth over time.


Information provided herein reflects Frontier’s views as of the date of this presentation and can change at any time without notice.

This information has been prepared by Frontier based on data and information provided by internal and external sources. While we believe the information provided by external sources to be reliable, we do not warrant its accuracy or completeness. Nor should their use be construed as an endorsement.

Frontier Asset Management LLC is a Registered Investment Adviser with the Securities and Exchange Commission. The firm’s ADV Brochure and Form CRS are available at no charge by request at info@frontierasset.com or 307.673.5675 and are available on our website www.frontierasset.com. They include important disclosures and should be read carefully. 20250116.11111