Global equity investors have enjoyed a remarkable run. The world’s premier stock market index, the S&P 500, rose 24% in 2023, another 23% in 2024, and 16% in 2025. With long-term average returns in the 8-10% range, three consecutive years of above-average performance is something to be grateful for.

This time last year, we discussed with clients the possibility that downside volatility could return after two strong years. It did. Tariff concerns drove a sharp decline in March and April, testing the resolve of investors worldwide. But markets recovered strongly, and those who stayed the course benefited. We enter 2026 with the same mindset.

Understanding the Current Moment

After three above-average years, many investors are asking whether markets have become “overvalued.” It’s a reasonable question. Unfortunately, it’s one that nobody can answer with certainty.

What we do know is that markets tend to revert toward their long-term averages over time. This isn’t pessimism. It’s simply how markets have always behaved. Extended periods of strong returns are often followed by periods of more modest growth, or temporary declines that bring valuations back in line.

Simply put, a period of below-average returns would be historically normal after the run we’ve enjoyed. But “normal” doesn’t mean “predictable.” We have no way of knowing when such a period might begin, how long it might last, or what might trigger it.

What We Can’t Know

Current market leadership is concentrated in technology and AI companies. Disappointing earnings from these giants could certainly trigger a change in sentiment. But the decline we experienced in early 2025 came from tariff concerns, something few were discussing a year earlier.

The trigger for the next market decline is almost always something different from what investors expect. This is precisely why we prepare rather than predict. Decades of evidence show that trying to time market exits and entries has consistently failed investors.

How to Approach the Year Ahead

Given all this, you might be tempted to make portfolio changes now. To shift to a more “defensive” position in anticipation of a potential decline.

Our advice: resist this urge.

Your portfolio is already designed around your long-term goals and your ability to weather temporary declines. Making changes based on feelings about where markets might head in the short term isn’t planning, it’s speculation.

Instead, ensure you have sufficient cash available for any known short-term expenses. This simple step prevents you from being forced to sell investments at an inopportune time. Beyond that, your long-term investments should remain exactly that: long-term investments.

The irony of good preparation is that it often looks like doing nothing. The financially literate understand this and find peace in it.

Standing Ready with Confidence

Whether 2026 brings continued gains or a temporary setback, your long-term trajectory remains unchanged. Declines, when they come, have always been temporary. The long-term growth of the great companies of the world has been permanent.

Your role is not to predict the future but to remain invested through it. We’ve navigated uncertain periods before. The experience of 2025 reminded us that this approach works.

We remain confident in the wealth-building power of owning shares in the world’s leading businesses. These companies will continue to innovate, adapt, and grow their earnings regardless of what headlines dominate the news cycle.

If you have any concerns about your situation or would like to review your cash position ahead of the new year, please reach out. We’re here to help you approach 2026 with clarity and confidence.