The S&P 500 delivered remarkable returns—26.3% in 2023, 25% in 2024, and 17.9% in 2025. These exceptional numbers might make you question if long-term investing still makes sense as markets reach new peaks.
Many investors feel concerned that markets have become overvalued after three years of above-average performance. Their caution makes sense. Historical patterns suggest we should expect below-average returns ahead. Long-term investing still offers numerous advantages over reactive approaches, despite this outlook.
The stock market’s behaviour reveals an intriguing pattern. The steepest market drops often lead to some of the biggest rallies. This unexpected relationship shows why wealth building works better when you stick to your long-term strategy instead of trying to time market swings.
Looking Back: What 3 Strong Years Tell Us
Investors saw wonderful returns across major market indices in the past three years. The S&P 500 did something rare: it gained double digits three years in a row. The index rose 24% in 2023, 23% in 2024, and 16.39% in 2025. This type of increase has happened only six times since the 1940s.
Market performance from 2023 to 2025
The tech-heavy Nasdaq Composite led other indices during this remarkable period with a 20.36% jump in 2025 alone. The Dow Jones Industrial Average finished 2025 with solid gains of 12.97%.
Artificial intelligence became the main force behind market growth during these years. Seven stocks—including NVIDIA, Alphabet, Microsoft, and Meta Platforms—made up about half of the S&P 500’s gains in 2025. The Morningstar Global Artificial Intelligence Select Index jumped 75.27% in 2023, 34.78% in 2024, and another 30.84% in 2025.
The bull market that started in October 2022 has brought total gains of nearly 89%. This is a big deal, as it means that returns are far ahead of historical averages for similar periods.
Why strong returns can lead to cautious optimism
Many analysts remain cautiously optimistic about market growth in 2026. They point to easing inflation, predicted interest rate cuts, and ongoing AI-driven state-of-the-art developments.
Bull markets that reach their fourth year have a strong track record. The S&P 500 averaged 12.8% gains in the fourth year for all but one of these bull markets since 1950.
Markets have shown incredible strength despite challenges. President Trump’s sweeping tariff announcement in early 2025 sent the S&P 500 down almost 19% from its February peak. Yet the index bounced back and ended up with a 16.39% gain for the year.
Long-term investors should note this pattern: markets often rise, not because everything’s perfect, but because things turn out better than feared. Strong earnings support today’s optimism, but high valuations and undervalued geopolitical risks need careful attention.
What History Teaches About Market Cycles
Market cycles have followed predictable patterns throughout financial history. Every market goes through four distinct phases: accumulation, markup, distribution, and markdown. These patterns give investors today vital context.
Patterns of recovery after downturns
Historical data tells us something reassuring: markets always recover from downturns, whatever their severity. The COVID crash of March 2020 showed amazing resilience. Markets bounced back in just four months—the fastest recovery of any market crash in the past 150 years. The December 2021 downturn, triggered by the Russia-Ukraine war and inflation, took 18 months to recover.
The market bounced back even after the devastating 79% decline during the early 1930s. These examples show that market crashes happen about once every decade. They might feel scary currently, but they’re normal events.
Why past performance doesn’t predict the future
The disclaimer “past performance is not a guide to future returns” might look like legal text, but it holds deep truth. Market conditions keep evolving. Strategies that work well in one environment often struggle when conditions change.
Let’s look at the dramatic flip between decades. From 2000 to 2010, energy stocks and emerging markets dominated the market. These same investments became some of the worst performers in the next decade. U.S. markets and technology stocks lost investors nearly 20% and 60% in that original period. Yet they delivered exceptional returns afterward.
The role of volatility in long-term investing
Volatility isn’t just something we put up with—it’s the price we pay to get potential long-term returns. Better outcomes usually come to investors who stay disciplined through market ups and downs.
In fact, missing just five of the market’s best days can hurt long-term results by a lot. The strongest rebounds often come right after the biggest drops. This explains why most investors lose money when they try to time the market.
Market volatility might feel uncomfortable, but successful long-term investing means seeing it as a natural part of the system, not a flaw.
Why Long-Term Investing Still Wins
The biggest question emerges after we explore market cycles and recent performance: what strategy actually builds wealth? Research shows that investors who stay in the market over long periods achieve better results than those who use short-term strategies.
Avoiding the pitfalls of market timing
Market prediction attempts usually don’t work out well. A newer study, published in 2023 by Morningstar, reveals that investors who tried to time the market earned 1.1 percentage points less each year than their funds generated over the past decade. Poor decisions about buying and selling directly caused this performance gap.
The evidence becomes stronger: your annual returns drop from 9.65% to only 3.8% if you miss the market’s 30 best days over 20 years. These peak-performing days often happen right after major market drops – exactly when most investors rush for cash.
The power of compounding over time
Compound growth lets you earn returns on your previous returns, which creates wealth that grows faster over time. To cite an instance, see how investing €9,542 at age 31 and letting it grow for 20 years builds 15% more wealth than investing double that amount (€19,084) over 10 years starting at age 41.
Here’s another viewpoint: monthly investments of just €95.42 starting at age 20 with 4% returns grow to €144,610 by age 65. However, waiting until age 50 and investing €477 monthly (five times more) yields nowhere near as much – only €126,096.
Staying aligned with your financial goals
A long-term investment strategy helps you handle market ups and downs without disrupting your financial objectives. Your investment strategy stays consistent when you focus on 5-, 10-, and 30-year priorities instead of reacting to market swings.
This strategy helps you build proper cash reserves for short-term needs while keeping long-term investments focused on growth. Regular automated contributions make shared cost averaging possible, which means buying more when prices fall and less when they rise.
How to Prepare Without Overreacting
A balanced approach helps you prepare for market fluctuations and prevents knee-jerk reactions. Your smart preparation should start with proper financial safeguards rather than dramatic portfolio overhauls.
Reviewing your emergency fund
Your emergency fund needs a thorough check before you make any investment decisions. Research shows that people who save just €1,908 experience a 21% boost in their financial well-being. This number jumps another 13% when they save three to six months of expenses. A financial buffer protects you from making hasty investment choices during market downturns or personal emergencies. People without emergency savings worry about finances for 7.3 hours a week—almost double the time compared to those with adequate reserves (3.7 hours).
Avoiding emotional portfolio changes
Behavioural finance research reveals that half of all investors make impulsive investment decisions, and two-thirds end up regretting these choices. These emotional patterns show up frequently:
- The anxious conservative sells at market bottoms and misses the recovery phase where most gains typically occur
- The distracted delegator makes dramatic changes after neglecting their portfolio for long periods
Automated investment plans can help you avoid these market timing attempts.
Focusing on diversification and risk tolerance
Your portfolio needs regular reviews – at least yearly or after major life changes – to maintain appropriate risk levels. Asset class diversification reduces the effect when individual investments underperform. The relationship between assets plays a vital role. You get the best protection by combining investments that don’t move in perfect unison.
We’re here to help if you want to talk about market concerns or review your financial plan.
Final Thoughts
The markets have been exceptional for three years. You might feel tempted to change your strategy based on what comes next. But history shows these reactions lead to lower returns. Investors who stick to their long-term strategies through market fluctuations beat those who try to time the market.
Our strong market performance since 2023 deserves some optimism, not drastic portfolio changes. Markets move in predictable cycles. This knowledge helps you keep the right viewpoint when volatility hits. Many of the market’s best days happen right after big drops, which makes this viewpoint even more valuable.
Compound growth is your strongest tool to build wealth. Starting early and staying invested through market cycles brings better results than stopping and starting your investments. Put your energy into keeping adequate emergency reserves and proper diversification. Make sure your investments line up with your long-term goals instead of reacting to short-term market moves.
Your best defence against bad decisions comes from preparation and patience, not from market predictions. This mindset lets you see market volatility as a chance to grow rather than a threat. We’re here to help if you want to talk about market concerns or review your financial plan.
Success in investing doesn’t mean catching every upswing or dodging every downturn. It comes from staying consistent and disciplined. Keep your investments steady through market changes and watch your wealth grow over time.
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