A volatile start to 2026.
March ended at yearly lows in major stock indices.
The worst performer so far was the Nasdaq 100, which groups technology companies and technically entered correction territory, falling up to -12%.
The S&P500 and global indices (MSCI World and ACWI) fell up to around -9%, temporarily avoiding correction territory.
It seems that Trump prepares us every year for at least one shock like this. Last year it was a tariff war, this year unfortunately a war with Iran.
Looking at the chart above (as of 31/3), it is easy to see some parallel behavior in the MSCI World (as an example of a major index) when comparing 2026 with 2025, a coincidence that does not guarantee similar performance.
The context remains highly uncertain
At the time of writing this article, a small rebound has occurred, softening some of the declines. But by no means is recovery from here guaranteed in the coming days. Short-term volatility will likely remain the norm for several weeks.
What can we expect?
We do not like to guess what will happen. The geopolitical environment remains very difficult to interpret and there is a lot of noise. Even so, it seems clear that pressure is increasing to find a path of de-escalation that helps contain the price of oil and mitigate the risks of a global crisis. That remains the most likely scenario, although the big question is how long it may take. And the longer the conflict lasts, the greater its impact on the global economy.
On the other hand, we see analysts already trying to call a bottom.
We will not be the ones to confirm or deny it; it is neither our job nor our intention in this article. What can be said is that, despite the seriousness of the conflict, the declines, although they may feel sharp in our portfolios (it always hurts to see a significant part of our gains disappear), seen in perspective have so far been relatively moderate.
Market declines in major indices are normal
In this uncertainty, it is worth reviewing history again to look for possible patterns.
And the first conclusion we reach is that declines in major indices are more than normal.
Specifically, declines of between -10% and -15% are very frequent in the S&P500 and have occurred 56 times (peak to trough) or 60 if measured within a one-year period.
Obviously, the number of declines decreases as we increase the percentage range. There have been, for example, 22 declines of -20% to -25%. But we can even look at it more negatively: there have been 64 declines of more than -20% if we add them all up.
Global diversification reduces drawdowns
The study of other indices such as the MSCI World or ACWI shows similar behaviour, but there is a significant reduction in smaller drawdowns, especially in the MSCI World, which has a history going back to the 1970s.
Therefore, we see that regional diversification clearly provides an improvement in drawdowns. For example, -10% to -15% drops are reduced by 46% (from 28 to 15) and -15% to -20% drops by 29% (from 14 to 10). However, the most severe drops of more than -40%, which total 4 in this period for both indices, are not reduced.
Not far from this, our profile 10 portfolios (close to 100% equity exposure) have been able to significantly reduce S&P500 drawdowns since their launch, as shown in the table below:
The reductions range between 20%/25% in declines below -20% and from 50% to 67% in ranges up to -30%. But not in the extreme Covid case.
Asset class diversification reduces drawdowns
One of the ways to further reduce drawdowns is diversification across asset classes, to a greater or lesser degree, as we design in our index fund portfolios, pension plans, and ETFs.
In the table above we see how drawdowns in an inbestMe profile 7 index fund portfolio have been significantly lower than those of the S&P500: a 50% reduction in smaller declines (<-25%) and completely eliminating those above that threshold.
We are not discovering anything new. This result is not surprising at all: it is the “power” of diversification combined across regions and asset classes.
Since losses cannot be eliminated, focus on what you control: your goals
These data help us understand that declines in major stock indices are normal and that they are the price we pay for achieving higher or lower returns depending on the risk profile over the medium and long term. Stock market declines are a consequence of what is known as the equity risk premium.
To eliminate declines in our investments there are certainly solutions:
- keeping money in cash, subject to inflation, a generally not recommended solution for preserving purchasing power
- keeping money in deposits or better in the inbestMe Savings Portfolio where volatility is zero. We will not have drawdowns but it is unlikely that we will beat inflation. This only serves to maintain all or part of our emergency fund.
The only option that allows us to reliably beat inflation is to expose ourselves to stock markets to a greater or lesser extent, accepting that drawdowns are normal.
There is no return without risk, without drawdowns.
Even fixed income, despite its misleading name, is also subject to drawdowns, generally milder but drawdowns nonetheless. Fixed income also has its own risk premium.
For these cases, the only tool that can smooth drawdowns is, as we have seen with examples, global and multi-asset diversification.
By doing it as we do at inbestMe, with indexed portfolios, global diversification, multiple asset classes and low costs, it is possible to achieve an average return of up to 4% annualised above benchmark indices.
Therefore, it is better to focus on our goals and time horizons and forget about markets and perfect timing. Whether we like it or not, markets will fall again at some point.
Even if at the time of writing this post a market bottom is forming, there will be other crises, other wars, and other calamities that will temporarily scare markets. And black swans also exist.
But let us remember that historically, financial markets show a tendency to rise over longer periods and with greater intensity than they fall, which benefits long-term investors. Although markets do not move in a straight line, bullish cycles tend to last longer and be larger in magnitude than the rapid declines that inevitably occur. The key is that these are temporary for a medium- to long-term investor.
Do not let them scare you, or you will never reach your financial goals.
