Recent rounds of tariffs and trade wars have rocked the market and provide the latest examples of the inherent volatility of investments. The fact that market declines occur and occurs with some degree of regularity means that it is not only possible to manage them, but it is of paramount importance.
“It’s not whether you’re right or wrong,” investor George Soros once said. “But how much money you make when you’re right, and how much you lose when you’re wrong.”
In other words, mitigating losses is just as important as maximizing profits. And this applies to two important reasons.
- The greater the losses, the more you may be tempted to sell your assets and lock in those losses.
- The higher the losses, the less fuel there will be to grow as the market recovers.
Point A is psychological and Point B is mathematical, so take each one individually. In the process, we’ll show you how to not only survive the storm, but also build a portfolio to absorb as many rays as possible as the sun shines again.
Smooth your investment journey
Imagine you are given a choice of rides: one on a hair-raising roller coaster, and the other on a bike that passes through a series of rolling hills. Certainly, thrill seekers may choose the first option, but I think most investors prefer the latter, especially if the ride in question lasts decades.
We diversify to make things smoother. Owning a combination of asset types can help ease the impact of your portfolio when certain types are performing poorly. For example, our core portfolio features blends of asset types, such as US stocks and global debt.
The chart below shows how these asset types have been implemented individually since 2018 compared to the 90% equity mixed approach, the blend approach of 10% bond core allocation.
As you can see, Core avoids the big losses that individual asset classes experience in regular. That’s through all the ups and downs of the past 15 years. A synthetic time weighted return of 9% per year is provided1and that’s after the fee has been recorded.
1As of 12/31/2024 and the start date 9/7/2011. Combined annual time-weighted return: 12.7% in 1 year, 7.9% in 5 years, and 7.8% in 10 years. Compound performance calculated based on the dollar-weighted average of actual client-time weighted returns for the 90/10 allocation core portfolio includes net fees, reinvestment of dividends, and excludes the impact of cash flows. Past performance is not guaranteed, but investments include risk.
Core’s global bonds and international stocks also helped its causeconsidering stocks from the beginning of the year, considering the outperformance against US inventory amid the current market volatility in 2025.
A smoother ride can take away your money even more
When considering “loss mathematics”, downside protection is even more important. We first acknowledge that it is a difficult mathematics to follow, but that is summarised in this: the profits needed to infiltrate grow even exponentially, just as the losses in the portfolio accumulate. The chart below shows this as a blue loss, and the profits should be made entirely in orange. Note that their relationship is anything other than one-on-one.
This is a point B mentioned previously: the greater your loss, the less fuel you have for future growth. Investors call this “volatility drugs.” That is why we carefully consider the risks of investments in anticipated returns. By sizing them together, expressed as sharp ratios, you can assess whether the compensation for a particular asset justifies that risk. This is because long-term wealth building is a marathon, not a race. It pays to pace yourself.
Still, there are still bumps on the road
Because market volatility cannot be completely removed. It’s okay to worry while you’re dropping. But hopefully, with more information on automated tools like portfolio construction and tax harvesting, we can ride the storm a little more peaceful. If you’re looking for even more peace of mind, consider upgrading to Betterment Premium and talking to your advisor team.
