---
title: "Navigating Market Turmoil: Insights on Diversification and Strategy"
description: Recent market shifts remind us that investing is a journey of ups and downs; your long-term strategy should remain steadfast.
image: https://blog.birchwoodfp.com/hubfs/market-volatility.jpeg
---
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# Navigating Market Turmoil: Insights on Diversification and Strategy
[Steve Dixon, CFA® CSRIC®](https://blog.birchwoodfp.com/author/steve-dixon-cfa)
Apr 8, 2025 2:33:04 PM
### Market Insight - April 2025
Last week, President Trump made an announcement regarding U.S. import tariffs that significantly exceeded the expectations of the capital markets. The repercussions were immediate and severe, with the S&P 500 Index experiencing a decline of over 10% in value within a mere two days1.
The last time we experienced this sharp of a market drop was in March 2020 in the early days of the COVID-19 pandemic. The index fell nearly 15% over two consecutive days that month1. Prior to that, it was in the throes of the Great Recession in late-2008 that we endured a two-day 13% drop1. While the reasons for each of these market selloffs have been very different, the pace of selling has been similarly dramatic.
Notably, the four best days for stock market returns in the past 20 years also came in 2008 and 2020, with each day appreciating by over 9%1.
[As I wrote last month](https://blog.birchwoodfp.com/current-economic-climate), these types of markets are an arduous test of an investor’s resolve. Your investment strategy does assume that markets will periodically shift from greed to fear and vice versa. It is during these shifts that the strategy is at once immensely vulnerable and vitally important.
The drivers of fear or greed, which are often seemingly unprecedented circumstances, may be so overwhelming that your investment strategy yesterday may now seem unfit for the new environment. This perception is what makes a long-term, diversified investment strategy vulnerable. How can what was working still be appropriate when it seems that the environment has changed so dramatically?
## learning from Past Market Volatility
If markets were in a perpetual uptrend, diversification wouldn’t be necessary, in fact, it would be detrimental. In reality though, markets are unpredictable in the near-term. As a result, diversification is a critical element of your investment strategy. We diversify to reduce the impact that market fluctuations may have on your portfolio during periods of heightened volatility, regardless of what causes that volatility. The goal being to ride out the short-term bumps toward achieving long-term gains. We maintain a long-term investment strategy because bear markets have always been followed by bull markets.
Analysis performed by First Trust2 supports this approach. By examining the 15 largest single day losses in the S&P 500 Index spanning back to the 1960s, they found that the average return over the following 12-month period was 30.3%. In only one instance was the index still down a year later and that was following the Great Recession in 2008.
As the Rolling Stones once sang, “time is on my side, yes it is”. Don’t let the headlines divert you from your investment strategy. Rather, allow time to be on your side as an investor.
Gratefully yours,
Steve Dixon, CFA®
Investment Manager
Dana Brewer, CFP®, Bridget Handke, CFP®, Damian Winther, CFP®, Rachel Infante, CFP®, Kimmie Moehring, CFP®, Brayden Kelly, BFATM, Kayla Berceau, CFP®
### Sources:
1 Source: Morningstar.
2 Source: “Markets In Perspective” First Trust. https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=ed114bca-4416-4caf-a2ea-97bf515b11d7. Accessed 7 Apr. 2025.
*Opinions expressed are not intended as investment advice or to predict future performance. No independent analysis has been performed. Investment decisions should not be based on information in this letter since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Asset allocation, which is driven by complex mathematical models, should not be confused with the much simpler concept of diversification. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Rebalancing may be a taxable event. Before taking any specific action, be sure to consult your tax professional.*
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Topics: [Market Insight](https://blog.birchwoodfp.com/topic/market-insight), [Steve Dixon](https://blog.birchwoodfp.com/topic/steve-dixon)
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