Friday, April 10, 2026
By Laura Kuntz, CPA/PFS, MBT, Chief Investment Officer
Staying Grounded During Recent Market Volatility. Over the past six weeks, markets have experienced heightened volatility since the start of the conflict involving Iran. From the beginning of year, the S&P 5001 reached a low of approximately -7%, while bonds—represented by the U.S. Aggregate Bond Index2—were at about break even.
This difference highlights something important: the cushion bonds and other diversification can offer during uncertain times.
Why Bonds and Diversification Matter—Especially Now. Diversification isn’t just about smoothing returns on paper. It plays a meaningful role in how investors experience markets and in protecting the financial flexibility that supports day‑to‑day life.
Here are a few reasons why the “cushion” provided by bonds and other diversifying investments is so valuable.
1. Losses Feel Worse Than Gains Feel Good
Research in behavioral finance shows that most people feel the pain of a loss about twice as strongly as they feel the pleasure of a gain. In other words, a market drop tends to loom much larger emotionally than an equivalent market rise.
There are good reasons for this. From an evolutionary standpoint, humans are wired to pay more attention to threats than rewards—avoiding danger was essential for survival.
Financial losses can trigger that same instinctive response, even when the loss is temporary or expected over the course of long‑term investing.
By helping reduce the depth of portfolio declines, bonds and diversification can soften those emotional swings and make it easier to stay focused on long‑term goals.
2. It’s Harder to Climb Out of a Deep Hole
Another reason diversification matters is simple math.
Imagine starting with $1.00:
If it drops 50%, you’re left with $0.50
If that $0.50 then grows by 50%, you don’t get back to $1.00—you end up with $0.75
This is the nature of percentages: bigger drops require much bigger gains just to get back to even.
Most clients care less about percentage returns and more about what really matters—the dollars available to support the life they want to live. By helping limit severe drawdowns, diversified portfolios reduce the climb required to recover.
3. Withdrawals Matter—Especially in Retirement
For those who are withdrawing from their portfolios—such as retirees—market declines carry another risk.
When assets are sold while prices are down to fund spending, those shares are no longer invested and therefore cannot participate in a future recovery. This can permanently impact a portfolio’s longevity.
Having steadier sources of funds, such as bonds or other diversifying assets, can help reduce the need to sell growth assets at depressed prices and allow time for markets to rebound.
4. Bonds Provide Flexibility When Opportunities Arise
Finally, bonds can be valuable because they act as “dry powder”—assets that can be repositioned when stocks become available at more attractive prices.
During periods of market stress, stock prices can fall faster than fundamentals change. Having a portion of the portfolio in steadier investments allows us to be thoughtful rather than reactive. Instead of needing to sell stocks when prices are low, bonds can provide a source of opportunity, allowing us to buy stocks at discounted prices which are likely to make us profits over the longer-term.
This is one of the less visible, but very real, benefits of diversification: it doesn’t just help manage risk on the downside, it can also create opportunity when markets are volatile.
The Bottom Line
Market volatility is never comfortable, but it’s precisely why diversification exists. Bonds and other stabilizing elements don’t eliminate ups and downs, but they can:
Reduce the depth of declines
Ease emotional stress
Preserve flexibility, especially during withdrawals
Gives us “dry powder” to take advantage of opportunities.
The Iran conflict is bringing higher gas prices and inflation. The longer the conflict continues, the more likely that these costs will be significant. In the face of this uncertainty, there is no question that proper diversification – including an opportunistic approach — is likely to add value.
As always, we’re here to help you navigate both the numbers and the emotions that come with investing. Please reach out anytime if you’d like to talk through what this means for your specific situation.
This would be a good write up to share this with family, friends, or colleagues who might be concerned about volatility and want to develop strategies to both protect themselves and benefit from opportunities.
Prepared with the assistance of Copilot AI, along with research, ideation, and editing by Laura Kuntz.
NOTES
1 Represented by the S&P 500 index: this is an index of the 500 largest stocks in the U.S. It is subject to substantial price fluctuation.
2 U.S. bonds are measured by the Bloomberg Aggregate Bond index. Bonds are subject to both interest rate and quality risks.
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