We wanted to take a moment to reach out regarding the current state of the stock market. As we navigate these turbulent times, we want to assure you that our team is closely monitoring the markets, your portfolio managers, and your accounts.
The purpose of this email is to provide insight into the systems and processes we have in place for managing portfolios during volatile market conditions, as well as to offer some historical context in an effort to ease the concerns that many people are naturally experiencing right now.
Ongoing Communication
You may have noticed an influx of emails from us over the past few weeks—and that’s intentional. Given the recent market headlines and volatility, we’ve been making a concerted effort to keep you informed and updated. We believe proactive communication is key during times like these, and you can expect us to continue providing timely updates and insights moving forward.
How We Do Business
Brophy Wealth Management, LLC, has been in operation for over 30 years. Through this experience, one key lesson our founder, Steve Brophy, learned is that there is no single way to manage all client portfolios, maintain a full meeting schedule, and respond to calls and emails during times of crisis. As a result, we have long been an early adopter of collaborating with Institutional Portfolio Managers, such as Morningstar, AssetMark, Rochdale, and others. These firms manage the portfolios of our clients, with billions (and in some cases, trillions) of dollars in assets under management.
This structure allows us to focus on what matters most—maintaining communication with you and ensuring your needs are being met. Our team conducts regular due diligence meetings with these portfolio managers. These meetings can include in-person visits to corporate offices or periodic phone and Zoom calls to discuss strategies and portfolio management. While we generally trust their expertise and leave them with autonomy, there have been times when we have recommended adjustments. A notable example was in early 2022 when we significantly reduced exposure to international markets—an adjustment that positively impacted account performance over the long term.
What You Can Expect
During the past few weeks, we have been in direct contact with many of our portfolio managers to ensure they are making the necessary adjustments based on current market conditions. Rest assured, we are actively monitoring the situation and remain committed to navigating through this period with care and diligence.
The Markets
It is important to also note that when we work with you and your portfolio manager to build out your investments, it is with the knowledge that significant swings in the stock market are the norm, not the exception. We want to make sure that the amount you have in stocks, which also means your exposure to these swings in value, is appropriate. This typically means that those approaching or in retirement have an increased weighting in bonds and other investments to diversify away from stocks since they have less need of risk/reward and more need for preservation. That being said, history has taught us the benefit of having some exposure to stocks in all phases of our financial lives.
We wanted to include the charts below because they illustrate both the risk and long-term rewards of stocks alongside the stability of bonds. The first chart looks at the S&P 500 from 1980 to March 31st, 2025. The red dots are the lowest point in the stock market at any given time during a calendar year. As you can see, EVERY year had a drop in the market with the average being 14.1% in any given year! The grey bars, though, represent what the S&P 500 ended up returning by the end of the year. It had fully recovered in 34 out of 45 of those years (75% of the time). You will also notice that every year in which the market closed negative, it saw a significant recovery the next calendar year with the exception of 2000-2001 (80% of the time).
Download Chart:Annual returns and intra-year declines
The next chart is similar, except it uses a US bond index. You can see the volatility is much lower, with the average drop being a mere 3.5%, but also no double-digit returns in the last 20 years. You will also notice that typically, the years that ended negative in the S&P 500 chart have a corresponding positive return in the bond index fund. This is why most of our clients approaching or in retirement have an allocation to bonds.
The reason that bond prices often rise as stock prices fall is when investors get spooked in the stock market they move funds into the bond market, which in turn drives up bond price. As you can see, we’re already starting to see this effect this year, with the bond index up 3% in 2025. This is good news for those who already own bonds like most of our clients. It is bad news for panicked investors because it means they sold their stocks low and bought bonds high.
Download Chart:Bloomberg U.S. Agg. annual returns and intra-year declines
This brings us to our last chart. What is the risk of getting out of the stock market and moving into more bonds or even cash? The risk is missing the recovery! As we showed above, 75% of the time the stock market ends positive in the same year in which it declined. For those years in which it did not, it ended positive the next year 80% of the time. However, if you parse the data even more, it’s not a matter of getting in and out in the right year as much as in and out on the right day! The below chart shows how much your average rate of return can be hurt by being out of the market if even for as short of a period as two weeks!
Download Chart:Impact of being out of the market
Conclusion
We know that this sudden drop in the stock market is nerve-wracking. Hopefully, you can see that while a specific tariff war may not have been predicted, we do plan for an average drop in the market of 14% each year and select your portfolios accordingly. This current period may feel “different” and like something “we’ve never seen before” and it is! It was also preceded by “unprecedented” events like:
- 2022’s rapid rise of interest rates resulted in an intra-year 25% drop in the market.
- 2020’s Covid-19 Pandemic resulted in an intra-year 34% drop in the stock market
- 2018’s government shutdown resulted in an intra-year 20% drop in the stock market
All of which resulted in an ultimate market recovery for those who stayed invested. We understand that everyone’s situation is different and that your concern may be stemming from something that we did not address above, so we also ask that you do not hesitate to reach out to the office to discuss your situation.