Skeels Cygan: How to accept uncertainty in your investments

Investing in the stock market has never provided guarantees. Everyone knows there is risk involved, and timing is everything. Yet long-term returns have been impressive, with the S&P 500 averaging over 10% for the past 10, 20 and 30 years. Howard Silverblatt, senior index analyst for S&P Dow Jones Indices, reported the annualized total return since January 1926 — almost 100 years — was 10.4%.

The long-term performance suggests we should all use a “set it and forget it” strategy.

However, before you decide to invest all your hard-earned money in the S&P 500, consider the following corrections:

• In March 2020, at the start of the COVID-19 pandemic, the S&P 500 declined 34%. It recovered within four months.
• During the 2008 Great Recession, the S&P 500 declined 52%.
• During the 2000 Dot-Com Bubble, the technology sector declined 78%.
• On Black Monday (October 19, 1987), the S&P 500 declined 20% in one day.
• During the 1929 crash — known as the Great Depression — the stock market declined 79%, and it took seven years to recover.

Although some of these declines were short-lived, Morningstar Inc., in an August 14, 2025, article by Senior Editor Emelia Fredlick, termed the period from the 2000 Dot-Com Bubble through May 2013 the “Lost Decade” because the recovery took more than 12 years.

The paradox

The variation between short-term and long-term performance creates a paradox.

Should we invest solely in the S&P 500 and ignore the corrections when they occur? History tells us that would be wise. In the Morningstar article, Fredlick states the following about stock market corrections: “Though they had varying lengths and levels of severity, the market always recovered and went on to new highs.”

Clearly, selling during a correction — at the low point — would lead to the worst possible outcome for an investor. Yet, that brings up another factor to consider. Individual investors are human, and our brains often interfere with rational behavior.

How we handle risk — which can lead to a major decline in our investment accounts during corrections — is a major factor in whether we will be successful at investing.

Neuroeconomics

Sometimes called behavioral finance, Wall Street Journal writer Jason Zweig discusses neuroeconomics in his book “Your Money and Your Brain.”

He describes neuroeconomics as “a hybrid of neuroscience, economics, and psychology,” which allows us to “begin to understand what drives investing behavior not only on the theoretical or practical level, but as a basic biological function.”

His book is about how our investing decisions are often not consistent or logical. The late psychologist and Nobel laureate Daniel Kahneman stated, “Financial decision-making is not necessarily about money… It’s also about intangible motives like avoiding regret or achieving pride.”

To emphasize the point, Zweig includes a story in his book about Harry M. Markowitz, who won a Nobel Prize in economics in 1990:

“In the 1950s, a young researcher at the RAND Corporation was pondering how much of his retirement fund to allocate to stocks and how much to bonds. An expert in linear programming, he knew that ‘I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it. My intention was to minimize my future regret. So, I split my contributions 50/50 between bonds and equities.”’

I started this column by stating there are no guarantees in investing, and there is risk involved. So, what is an individual investor to do?

Take control of your money

I’ve always believed that far too many investors take a “wait and see” approach to their investments. If you thoughtfully consider the asset allocation that is best for you—and you rebalance your accounts and monitor them — you will be taking a huge step forward.

1. What asset allocation do you want for your investments?

The asset allocation decision is very important. A classic 1986 study estimated that 91.5% of portfolio performance is based on the asset allocation decision, with 4.6% based on security selection, 1.8% on market timing and 2.1% on other factors. This study was replicated by Daniel Wallick and colleagues at Vanguard in 2012. They concluded that the asset allocation decision determined 88% of a diversified portfolio’s return.

In choosing your asset allocation, recognize that equities — the portion you invest in the stock market — has historically averaged a higher return than fixed income (bonds, CDs, money market funds). The downside is that the portion invested in equities is also riskier and more volatile than the fixed income portion, causing potentially greater losses.

• Are you comfortable with an aggressive allocation such as 80% in the stock market? Are you confident you will be able to avoid the temptation to sell when the stock market declines?
• Do you want what many in the financial industry have termed a “balanced” portfolio with 60% equities and 40% fixed income?
• Do you want a more conservative asset allocation, such as Markowitz at 50/50%, or a much lower percentage of equities?

2. What is the asset allocation in your investment accounts now?

Many investors have a higher equity percentage than they realize because the strong stock market performance in 2023, 2024, and (so far) in 2025 has caused the equity percentage to increase significantly.

3. Rebalance your investment accounts to your chosen asset allocation now.

Do not wait until next month or next year. Remember, this is about taking control of your investments.

Selecting an asset allocation and rebalancing your accounts is a significant step. If you want to do more, educate yourself on investing. Decide if your accounts are diversified and research the types of equity funds and fixed income you want in your accounts.

Accept the uncertainty

There is currently a lot of uncertainty in the U.S. and the world. Investors have faced challenges and uncertainty in every era. We cannot predict how recent events will impact our economy or the short-term performance of the stock market. My advice is to accept the uncertainty, monitor your investments and protect your family and your future. The stock market has had a long and impressive record. Let’s hope it continues.