Sometimes the most dangerous time in the markets is when things feel calm. Right now, stock markets are near record highs, and day-to-day ups and downs are relatively small compared to history. It can feel like smooth sailing. But that calm can be misleading.
Why Calm Can Be Risky
When markets stay quiet for a while, it’s natural for investors to relax and think, “Maybe this is the new normal.” That’s recency bias—assuming the recent past will just keep repeating itself. The problem is that markets don’t usually stay calm forever. Volatility tends to come in waves: the longer the quiet stretch lasts, the more likely the next wave will be bigger.
And when prices are already high1, even small surprises—a shift in interest rates, a political event, or a disappointing company announcement—can cause markets to react strongly.
The Trap of Trying to Time It
A common reaction is to wonder, “When will the next downturn happen?” The truth is, no one can consistently time the market. Guessing when to get in or out often does more harm than good—especially if the calm lasts longer than expected.
How to Prepare Instead
Rather than trying to predict the next big move, the better approach is to prepare for it.
That may simply mean reviewing your current plan—making sure your goals are clear, your comfort with risk still matches your portfolio, and your diversification is intact. Often, staying the course with a well-designed strategy is the most effective defense against market surprises.
You might also consider making your portfolio more resilient by:
- Diversifying Differently: Adding some “different movers” (alternatives) that don’t always follow the stock market.
- Adding Inflation Protection: Owning assets that can hold value if prices rise, like TIPS (Treasury Inflation-Protected Securities)2, real estate, or commodities.
- Reducing Duration Risk: Keeping bond maturities shorter to limit the impact of sudden interest rate increases.
- Tilting Toward Defensiveness: Favoring higher-quality and lower-volatility investments that tend to hold up better in rocky markets.
The Bottom Line
The calm we see today doesn’t mean risk has disappeared. It just means it’s quieter than usual. Markets don’t send out invitations before they change course.
The best defense isn’t trying to outguess the next move. It’s making sure your plan still fits your goals — and, if needed, adding a few extra layers of resilience to your portfolio.
- High prices mean investors are paying more for each dollar of company earnings. That leaves less room for growth and makes markets more sensitive—because when expectations are already high, even good news can disappoint. ↩︎
- TIPS are U.S. government bonds that automatically adjust with inflation, helping protect your purchasing power over time. ↩︎
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
