The recent round of tariffs and trade wars have roiled markets, offering the latest example of investing’s inherent volatility. The fact that market drops do happen, and happen with some regularity, means that managing them is not only possible but paramount.
“It’s not about whether you’re right or wrong,” the investor George Soros once quipped. “But how much money you make when you’re right, and how much you lose when you’re wrong.”
Mitigating losses, in other words, matters just as much as maximizing gains. And this is true for two important reasons:
- The bigger the loss, the more tempted you may be to sell assets and lock in those losses.
- The bigger the loss, the less fuel for growth you have when the market does rebound.
Point A is psychological, while Point B is mathematical, so let’s take each one separately. In the process, we’ll explain how we build our portfolios to not only weather the storm, but soak up as many rays as possible when the sun shines again.
Smoothing out your investing journey
Imagine you’re given a choice of rides: one’s a hair-raising roller coaster, the other a bike ride through a series of rolling hills. Sure, thrill seekers may choose the first option, but we think most investors would prefer the latter, especially if the ride in question lasts for decades.
So to smooth things out, we diversify. Owning a mix of asset types can help soften the blow on your portfolio when any one particular type underperforms. Our Core portfolio, for example, features a blend of asset types like U.S. stocks and global bonds.
The chart below shows how those asset types have performed individually since 2018, compared with the blended approach of a 90% stocks, 10% bonds allocation of Core.
As you can see, Core avoids the big losses that individual asset classes experience on the regular. That’s one reason why through all the ups and downs of the past 15 years, it’s delivered 9% composite annual time-weighted returns1, and that’s after fees are accounted for.
1As of 12/31/2024, and inception date 9/7/2011. Composite annual time-weighted returns: 12.7% over 1 year, 7.9% over 5 years, and 7.8% over 10 years. Composite performance calculated based on the dollar-weighted average of actual client time-weighted returns for the Core portfolio at 90/10 allocation, net of fees, includes dividend reinvestment, and excludes the impact of cash flows. Past performance not guaranteed, investing involves risk.
Core’s exposure to global bonds and international stocks has also helped its cause, given their outperformance relative to U.S. stocks year-to-date amidst the current market volatility of 2025.
A smoother ride can take your money farther
Downside protection is all the more important when considering the “math of losses.” We’ll be the first to admit it’s hard math to follow, but it boils down to this: as a portfolio’s losses rack up, the gains required to break even grow exponentially. The chart below illustrates this with losses in blue, and the gains required to be made whole in orange. Notice how their relationship is anything but 1-to-1.
This speaks to the previously-mentioned Point B: The bigger your losses, the less fuel for growth you have in the future. Investors call this “volatility drag,” and it’s why we carefully weigh the risk of an investment against its expected returns. By sizing them up together, expressed as the Sharpe ratio, we can help assess whether the reward of any particular asset justifies its risk. This matters because building long-term wealth is a marathon, not a race. It pays to pace yourself.
And yet, there will still be bumps in the road
Because no amount of downside protection will get rid of market volatility altogether. It’s okay to feel worried during drops. But hopefully, with more information on our portfolio construction and automated tools like tax loss harvesting, you can ride out the storm with a little more peace-of-mind. And if you’re looking for even more reassurance, consider upgrading to Betterment Premium and talking with our team of advisors.