Every market correction feels different. The headlines change, the specific cause changes, and the emotions investors bring to it change. What has stayed remarkably consistent, across decades of market history, is this: the decisions that do the most damage to a portfolio are rarely made during calm markets. They’re made in the middle of a decline, under pressure, without a plan already in place. 

In a recent episode of Quarter Over Quarter, Tom Moran and Don Drury discussed how investors can prepare for volatility before it arrives, rather than reacting once markets have already fallen. Their conversation covered liquidity planning, concentration risk, diversification, market timing, international opportunities, energy and commodity investing, and portfolio stress testing — all of it grounded in a simple idea: preparation is something an investor can control. The next headline is not. 

This piece expands on those themes and looks at what market history actually shows about corrections, investor behavior, and the preparation that tends to separate a difficult year from a derailed plan. 

The Historical Pattern: Corrections Recur, Reactions Repeat 

Market corrections — commonly defined as declines of 10% to 20% from a recent high — are a routine feature of investing, not an aberration. What tends to repeat isn’t the cause of the decline, but the investor behavior around it: selling after a drop has already occurred, waiting for “clarity” that rarely arrives before a recovery, and re-entering the market only after much of the rebound has already happened. 

That pattern shows up clearly in DALBAR’s 2026 Quantitative Analysis of Investor Behavior (QAIB) report, which tracks the gap between what the market returns and what the average investor actually earns. In 2024, that gap widened to 848 basis points as the S&P 500 returned 25.05% while the average equity investor earned 16.54% — largely a function of selling activity around volatility. In 2025 the gap narrowed considerably, to roughly 72 basis points, alongside elevated withdrawal activity earlier in the year. The pattern varies year to year, but the underlying lesson doesn’t: investor behavior, not just market movement, tends to determine outcomes. 

Liquidity Planning: The First Line of Defense 

One of the most direct ways to reduce the temptation to sell during a decline is to have already set aside the cash a household is likely to need in the near term, before that need becomes urgent. This is distinct from a general emergency fund; it’s a deliberate allocation sized to near-term spending, separate from the portion of the portfolio invested for long-term growth. 

The Federal Reserve’s 2025 Report on the Economic Well-Being of U.S. Households, published in 2026, found that 63% of adults could cover a hypothetical $400 emergency expense using cash or its equivalent, and 70% could cover an expense of at least $500 from savings — both essentially unchanged from the prior year. Liquidity planning for investors follows the same logic on a larger scale: money earmarked for spending in the next one to three years generally shouldn’t be riding through equity market volatility alongside long-term assets. 

Concentration Risk in Today’s Market 

Concentration risk has become more relevant to a broader set of investors than in past cycles, even for those who believe they own a diversified index fund. According to RBC Wealth Management, the top 10 companies in the S&P 500 accounted for roughly 18% to 23% of the index’s weight from 1990 through 2015. That figure has since climbed to a record 40.7% in 2025, driven largely by a small group of mega-cap technology and AI-related companies. 

This doesn’t make an S&P 500 index allocation a poor choice on its own, but it does mean an investor who believes they hold 500 individual companies’ worth of diversification may, in practice, be far more exposed to the performance of a handful of names than they realize — a distinction worth understanding as part of any concentration or diversification review. 

Diversification and International Opportunities 

Diversification doesn’t eliminate the possibility of a decline, and it isn’t designed to. Its purpose is to reduce the odds that a single company, sector, or country drives the outcome of an entire portfolio. That includes looking beyond U.S. markets: international developed and emerging market equities don’t always move in lockstep with U.S. indices, and valuation gaps between U.S. and international markets have widened over the past decade as U.S. mega-cap technology stocks have led global returns. 

None of this is a prediction that international markets will outperform going forward. It’s a reminder that a portfolio built around a single region’s recent winners carries a different risk profile than one that hasn’t made that bet, whether or not that bet has paid off recently. 

Energy and Commodity Investing 

Energy and commodities, including gold, are sometimes framed as a hedge against market shocks, and the relationship is more nuanced than that framing suggests. Commodity prices respond to their own set of supply, demand, and currency dynamics, which don’t always correlate with equity market stress in a predictable direction — in some downturns commodities have cushioned losses, and in others they have declined alongside equities. Rather than a guaranteed offset, energy and commodity exposure is better understood as a way to diversify the sources of risk and return in a portfolio, with its own volatility and trade-offs. 

Market Timing: Why Two Correct Decisions Are Required 

Successfully timing a market decline requires being right twice: knowing when to sell, and knowing when to get back in. J.P. Morgan Asset Management’s analysis of the S&P 500 found that missing just the 10 best trading days over a 20-year period would have cut a hypothetical investor’s return roughly in half, compared with staying fully invested. A meaningful share of those best days occurred within days or weeks of the worst days — often during the same period of volatility an investor might otherwise be tempted to sit out. 

This is a historical pattern, not a guarantee about any future period, and it doesn’t mean every market decline resolves quickly. It does help explain why attempting to dodge a downturn by moving to cash carries its own, less visible risk: missing the recovery that tends to follow. 

Portfolio Stress Testing: Connecting Risk to Goals 

Portfolio stress testing evaluates how a portfolio might behave under a specific, severe scenario — a sharp rate move, a sector-specific shock, a repeat of a past crisis — rather than under average conditions. The purpose isn’t to predict which scenario will occur, but to surface how much risk a given portfolio is actually carrying relative to what an investor believes they can tolerate, and relative to what their long-term goals actually require. 

Run before a decline, stress testing can highlight a mismatch between a portfolio’s risk level and an investor’s liquidity needs or time horizon, while there’s still time to make a deliberate adjustment — rather than a reactive one.

A Look at Common Reactions vs. What History Suggests 

When Staying the Course Isn’t the Right Answer 

None of this is an argument for never making changes to a portfolio during a decline. A change in an investor’s time horizon, income needs, risk tolerance, or family circumstances is a legitimate reason to revisit a plan at any time, including during volatility. The distinction that matters is between a change made because the underlying plan or circumstances changed, and a change made because the market fell and the news felt urgent. Historical patterns describe tendencies across many investors and time periods; they don’t guarantee how any individual portfolio will perform in a future decline, and past market behavior is not a reliable predictor of what will happen next.