In this episode of Motley Fool Money, Motley Fool contributors Jon Quast, Matt Frankel, and Rachel Warren discuss:
- Market volatility: What it is and how bad things can get.
- How diversification can help returns.
- Stocks that help long-term returns.
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A full transcript is below.
This podcast was recorded on April 6, 2026.
Jon Quast: The stock market is getting bumpy, but we want to be smooth investors. This is Motley Fool Money. Welcome to Motley Fool Money with the Hidden Gems team. I'm Jon Quast, and I'm joined today by our contributors, Rachel Warren and Matt Frankel. We are really happy that we can start taking some questions from our mailbox on this show. It's a really great addition. It actually works out really well this week because we had to tape today's episode in advance. If you are in the future, listening to our voices, and the world is falling apart, something is on fire, and we're not talking about it, apologies. We're living in the past taping this, and that's why we're not acknowledging, but let's get to our question here. We're actually going to make an entire episode out of this, and here is the mailbag item that we pulled out.
It's from a listener named Brandon O'Shaughnessy. He writes, Dear Motley Fool Money Team. I'm writing to you today regarding the significant market volatility we are experiencing in 2026, given the current sea of red and the fact that many investors are seeing their recent returns wiped out, would you be able to take 10 minutes on an upcoming segment to discuss why diversification and maintaining a long-term outlook are the keys to surviving this environment? Specifically, I would love to hear your insights on how investors can persevere through these downturns and whether you believe The Motley Fool strategies can truly beat the market during times of such intense volatility. Thank you for your time and for all the great content you provide. Best regards, Brandon O’Shaughnesy.
Rachel, Matt, I thought we might break this down piece by piece. Let's address the first part of what Brandon writes about. Let's talk about volatility. Rachel, what is stock market volatility, and from a broad market perspective, what should investors consider to be normal?
Rachel Warren: When we talk about volatility, I think a lot of people think, oh, maybe a market crash is coming. But honestly, in the investing world, volatility, from a technical standpoint, it's really the speed and frequency of price changes. You think of it like turbulence on a flight. It's the bumps that the market experiences as it's processing new information. This could be interest rate hikes. This could be geopolitical headlines. It could be a wide range of drivers, but it's really just the market trying to find a fair price for stocks in real time, or even more to the point, how investors value those stocks at that specific point in time.
Now, for a long-term investor, volatility is not the enemy. It's really the price of admission for those higher returns that stocks can offer over things like, savings accounts or bonds in the long term. But I think it is important to point out from a broad market perspective, normal in the market can actually look a lot bumpier and even more volatile, if you will, than most people realize. Historically, the S&P 500 experiences an average intra-year drawdown of about 14% give or take. That means that in a perfectly healthy year, it's completely standard to see the market drop even double digits at some point before recovering. We typically see a single-digit, around 5% pullback every few months. Even a 10% correction roughly once every year or so. Understanding those benchmarks is really crucial because I think it really helps us as long-term investors stay the course when headlines start getting loud.
I think we're really seeing this play out in real time. Those numbers can obviously look scary on a screen. But obviously, that's also the moments where long-term investment opportunities are created, to quote the great Warren Buffett loosely, volatility isn't a threat to be feared but a tool to be used for buying quality companies at a discount. I do think it's important as investors to recognize that volatility is actually much more normal than it might feel like in that moment in the market.
Jon Quast: As you point out, I think it's so much easier to brace yourself for something when you know it's coming. But if you don't know it's coming, it can really catch you off guard. I think that is, to your point, Rachel, the first step in learning how to handle the stock market is understanding the normal ebbs and flows of the stock market. There's a lot that happens in a given year.
Now, Matt, I want to turn to you here. I believe you've been investing longer than Rachel and I. I was wondering if you would speak to your personal experience in this area. If stock market volatility is normal, then certainly you've experienced that as an investor. I'm curious, what is the worst period of volatility that you've gone through? Maybe, if you can remember, how much was your personal portfolio of stocks? How big of a drawdown did it experience? How long did it take to recover?
Matt Frankel: I'm definitely aging myself here. I bought my first stock in 2002, which was actually in recovering from a bear market at the time. One thing I've learned in over two decades of investing is that there is no such thing as a normal market. There's no such thing as a normal correction, a normal market crash. We might hear, it's been 10 years since we've had a normal recession. Well, there is no normal recessions. They're all different. They're all different circumstances. They’re impossible to see coming. But in my time, the 2008, 2009 period was the worst. Thankfully, I was still pretty early in my investing lifetime, and my portfolio was still relatively small. Investing was just a side hobby for me at that point. But from the 2007 peak before the financial crisis, my portfolio lost about 60% by the time things finally bottomed in March 2009. It's not like I was doing a bad job of investing. The S&P itself lost 55% from peak to bottom in that time. Took my portfolio a couple of years to reach new highs, and that's with continually depositing money into it.
But it's important to note that this was a period that was full of opportunities for patient investors to buy shares of top-quality businesses. For example, I ended up buying shares of Bank of America in the years that followed, and I still own them, and they produced a roughly 500% return since then. This is also when I started buying shares of Berkshire Hathaway, which I always add to when it's on sale, and now it's one of my largest investments. But having said that, I didn't have an opportunistic mindset while it was happening in 2008, 2009. Financial system in the US was on the brink of collapse. It was a scary time, and I wasn't a seasoned investor. It was scary. I totally understand. It's one thing to say that there are opportunities when the market's down. It's another thing to actually live through when the market draws down by over 50%. But one thing that I got right was not panicking and selling when things were plunging. That was my biggest saving grace during that time period.
Jon Quast: We do have show notes that we go off of, and I'm going to go off script here because I want to ask you something about what you just said. You talked about a couple of years till your portfolio regained its previous highs, but that was while you were still investing during the downturn. I just wonder if you could theorize or guess how long do you think it would have taken to regain highs if you hadn't been investing on the way down as well as on the way up?
Matt Frankel: My guess would be roughly 2013 somewhere in that neighborhood, especially if you weren't investing heavily back then. A lot of stocks, especially in the financial sector, didn't actually reverse course for a couple of years. Like, Bank of America, I don't think bottomed until 2013. A lot of the stocks that I was buying at a discount ended up going to even more of a discount before they started turning the corner. Even though, yes, I was putting more money in the market, I was investing actively during that time, it took a while until we really saw things turn around, especially in the financial sector.
Jon Quast: Let's circle back to Brandon's question here. He's asking about stock market volatility. We've talked about that in the normal cycles. We've talked about how bad things can get. Matt's portfolio is saying down more than 50% during the worst of it. In the context of 2026, how bad has it been so far this year? How bad do you think it could get, or do you think that we've already seen the worst of it? Matt, I want you to go first here.
Matt Frankel: I'm going to be perfectly clear here. I have absolutely no idea what the stock market will do for the stan of 2026. I'll even go further. Anyone who tells you that they do is lying to you. But to answer the question, 2026 hasn't been that bad so far through most of the market in terms of the percentage drops. Volatility has certainly been elevated, and there are some areas of the market that have been absolutely hammered like software businesses. It could absolutely get worse before it gets better. The Iran conflict could escalate, sending energy up even further, or even if it doesn't escalate, but just drags on the second-order effects of higher energy prices, like grocery inflation because you have to pay for gas to the trucks that deliver it. A lot of other goods and services in the economy could get worse. My general outlook is that the stock market will almost certainly be higher five years from now. My bold prediction is that the Iran conflict is going to be over within a month or so, and the market will rebound on that news. But I'm not sure I'd go so far as to bet on that happening.
Jon Quast: Rachel, Matt admitted, yeah, we don't know the future with certainty. But do you agree or disagree here with Matt's outlook for the year? What do you think?
Rachel Warren: Looking ahead, I do think there could be a bumpy road in the market for the near future. In that sense, I agree with Matt. I'm not going to make any bold predictions about what happens in 2026. I do absolutely think that we can continue to see additional volatility and dips in the market. Something that Matt said earlier is really notable, this idea that every time is a little bit different, and that's true. But also, when we look back at so many of these lengthy periods of volatility in the market, even bear markets, there's always been this sense of, oh, this has never happened before. There's never been a bear market from which the stocks have not recovered and outpaced their prior returns. I'm not saying we're going to see one of those in 2026, but I do find history and the track record of the market to be very comforting in that way. I think five years from now, we're looking at a better and stronger market that we see now.
One final note, I think it's important to differentiate between the performance of the market and the performance of your underlying stocks. All of us have very different portfolio compositions and preferences and risk tolerances, and that really affects the returns that we're seeing individually. For myself, I'm staying focused on the stocks and sectors I know well and that I believe in as long-term anchors in my portfolio, and that's regardless of what the market does over the next 12 months.
Jon Quast: We have sat here, and we've talked about volatility, but when we come back, we're going to talk about diversification and how it can help. You're listening to Motley Fool Money.
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Jon Quast: Welcome back to Motley Fool Money with the Hidden Gems team. We are still talking about Brandon's question. Before we get into kind of the second part of his question here, Brandon mentioned that some investors are seeing their recent returns wiped out by the current volatility, and that's how he put it. My personal portfolio is actually up year to date, so I was wondering if we could speak to the downtrodden sectors of the market. What is doing well right now and what is doing poorly, a poor portfolio performance in 2026 or being wiped out so far in 2026, it would seem to imply a certain concentration in the harder hit areas. Do you agree?
Rachel Warren: I think that's true. I mean, personally, I'll say, like, a lot of investors right now, my portfolio is very much in the red. I'm someone that invests quite extensively in tech among a range of other sectors, and of course, that has been a very affected sector industry. I do think it's important to remember that feeling of seeing your portfolio down is painful. I would say I started taking my investing journey very seriously during those early days of the pandemic. I have been through this before. Those sector shifts are often just a natural part of a long-term market cycle. It is really dependent on how you invest the types of companies that you put cash into. I think what we are seeing right now is there's a bit of a rotation from where the market is maybe taking a breather from those high-growth leaders of the last few years, whether it is, software stocks or otherwise, to find value in more stable areas.
Now, I want to say, as a long-term investor, seeing your tech stocks, for example, under pressure, doesn't necessarily mean the story's over, that it's time to sell everything. We're obviously seeing a real lift of those so called real economy sectors, right? I think consumer staples, healthcare, industrial, energy. Now, those are driven by long-term tailwinds, but this is also, I think, a really predictable response that we're seeing in the market right now and that tends to come up during these periods of macro and geopolitical uncertainty. Think that it's also important to note that in the long run, the market tends to reward companies that grow their profits and cash flow regardless of what sector they sit in. That pressure on some of those industries right now, it's a test of patience for those of us who are long-term shareholders. My view is if the underlying businesses are still dominant and growing, the current dip can look like really a minor blip when you're thinking of it in the perspective of a 10-year chart or a longer investment horizon.
Matt Frankel: Jon, I'm glad that your portfolio is higher, and I know that people who are listening to this with just audio can't see me rolling my eyes a little bit right now. But that's certainly not the case for me. The S&P 500 is only down about 4% for the year as we're recording this. But I'm down about 10% for the year. I'm down about, I think, roughly 13, 14% from the highs of last year. If you're in a similar situation, I really want to emphasize this. It doesn't mean you're doing anything wrong. It just means you're exposed to the parts of the market that have been hit hard, like Rachel mentioned she's in a lot of tech stocks. I'm in a lot of financials, one of the worst-performing sectors.
For example, I don't think anyone would argue that the MAG 7 isn't a top-quality group of companies, but it's down by double digits this year. If you have a MAG 7 ETF, you're down by double digits. Obviously, energy is doing well. It's up 35% year to date. Rachel mentioned this, but utilities and consumer staples are both up nearly 10%. Pretty much the more defensive your portfolio is, the better you are likely doing right now. But these are areas that they tend to underperform the market in good times. Two, by positioning yourself for outsized returns over the long run, you have to be willing to accept some elevated volatility in times of uncertainty like we're in right now.
Jon Quast: I feel called out by Matt here. My portfolio has indeed underperformed the market in the last couple of years, which were good times, and here I am. I might be up a little bit this year, but it's not by much. Let's keep going here. We've talked about volatility. Now we're talking about what things are down, what things are doing well. I love Brandon's question here as we continue to just hammer down on this. It does appear that Brandon understands The Motley Fool investing philosophy, by the way he words this question. We do believe in buying and holding dozens of stocks, which really bucks a narrative. There's a narrative out there among the investing community that concentration or buying just a few stocks is how you build wealth. Our philosophy says that we should be diversified, which is very counter-narrative. Matt and Rachel, why is it a good thing to actually be diversified, especially as we're talking about the subject of volatility?
Rachel Warren: I think it's a fascinating point you make, this idea of how the idea of concentration builds wealth, that that's a narrative that captures the imagination. But honestly, it's usually we hear stories like that. It spotlights that one in one million investor who went all in on a single tech titan and struck gold. The story can lift our imaginations. But it really ignores the many portfolios that can be wiped out or were wiped out because they leveraged to the hilt on a single company that maybe hit a scandal or there was a technological obsolescence or some other hurdle. In a market where volatility is the only constant, heavy concentration is not a strategy for building wealth, and it can actually be a strategy for high-stakes gambling, which is really not what we're about when we are concentrating on a long-term investment strategy.
The other thing is, when your portfolio is too concentrated, you could have a bad earnings report or some other event a sector that derails years of portfolio progress. By being diversified, you know, we're not just spreading out risk as investors, but we are giving ourselves ways to capitalize our portfolio growth across the entire economy to absorb the shocks of a changing market cycle without being forced into a panic sell situation. I think ultimately the goal here, right, is to stay in the market long enough for the power of compounding to do the heavy lifting. That is really more likely and something that is easy for even the most, inexperienced all the way to veteran retail investors to achieve when you have a well diversified portfolio.
Jon Quast: There was a investor who wasn't a huge fan, at least in his words of diversification, and that was Charlie Munger. Charlie Munger was a billionaire investor, Warren Buffett's right-hand man for many years. He used to say most diversification is diversification. Who are we to disagree with such a wonderful investor, such a clear thinker on the subject of investing? Matt, I just want to I know you're a big fan of Charlie Munger, as well. Are we saying something different from Munger here, and if we are, how dare we?
Matt Frankel: Diversification, as Charlie Munger uses the term, generally referring to the practice of owning stocks or sectors that you don't know well simply to have some more variety in your portfolio. Buffett himself once said that, diversification is protection from not knowing what you're doing. Buffett notably avoided technology and pharmaceuticals, just to name a couple examples. But on the other hand, Charlie Munger didn't necessarily mean that diversification meant that you shouldn't own a lot of stocks.
Since I've been following Berkshire, and it's been about 20 years now, as I mentioned earlier, the portfolio had generally had 40-50 stocks in it at any given time. But as we know, they weren't afraid of concentrating assets in the stocks that they had the highest conviction, and it wasn't that long ago where Apple was half of Berkshire's portfolio. Right now, five stocks make up more than half of Berkshire's stock portfolio, that's after paring down the Apple and Bank of America stakes. But Warren Buffett and Munger also open starter positions and own several stocks in each of their favorite sectors, like financials. Both of those are very Foolish investing concepts that you can have without a sector-diverse portfolio.
Jon Quast: Man, we are really hammering this topic, but we are not done yet. After the break, our analysts are going to leave you with just a couple of stocks that you might want to think about as we talk about volatility and diversification. You're listening to Motley Fool Money.
Welcome back to Motley Fool Money with the Hidden Gems team. We want to make you part of the conversation, just like we're doing today. If you have a stock or an investing question for Matt, Rachel, myself, somebody else on the show on a different day, you can now email us at podcast afool.com, and we would love to have mailbag segments like this whenever possible, maybe a whole show like we're doing right now, or maybe just a small segment of the show. But we need your questions. Send them in. Remember to keep them Foolish. The email again is podcast at fool.com, podcast at fool.com.
Now, just as we close out, Matt, you were talking about the correction or the crash, I should say, back in 2008, 2009, and how you continued to buy stocks during that time. One of the stocks that you bought was Bank of America position that went on to multibagger gains. As we look at this question from Brandon, the sea of red people being substantially down, market crash, perhaps the market's going lower. If it does go lower, if the market continues to trend downward, what is a stock that you would be looking at and saying, what? This would be a great diversifier in my portfolio. This would be something that I would like to add if it continued to get cheaper and cheaper.
Matt Frankel: If the market, say dropped by 20% for the rest of 2026, which I don't think is likely, but it's certainly possible. I don't want to get repetitive and say, I'd add to Berkshire Hathaway, which I probably would. I've already added to about a dozen stocks in my portfolio in the recent dip. But one in particular that really stands out is a company called Prologis. Ticker symbol PLD. They're the largest real estate owner in the market right now. They own big logistics properties, warehouses, things like. Can't picture any world where Amazon doesn't need those football field-size warehouses they have, and Prologis owns a lot of those. We're seeing a real inflection point in logistics, real estate. They're a very well-run business. They have top-rated credit. They have great advantages over competitors when it comes to financing, and they have been quietly getting into the data center space. If you want a sneakier play on AI, that's one. The stock has rebounded significantly over the past year or so. But if that one dipped by a lot, I would definitely add to that position.
Jon Quast: Rachel, as we turn to you here, I'm going to ask a slightly different question. As the stock market gets volatile, as your portfolio drops, do you have a stock that you have in that mix of yours that you look at it, and you're like, Oh, my gosh, I am so glad that I own this one because it really helps stabilize my overall returns in these uncertain times.
Rachel Warren: It's funny. I mentioned earlier in the show, Tech's a huge area of investment for me. Well, so is healthcare. That's always been int of this approach I've had of investing in one of these more cut a stable, slower growth industries. Johnson and Johnson. The pharmaceutical leader is one of the if not the best performing stock in my portfolio so far this year. The company stock is up about 20% Year to date. Compare that to the single-digit decline of the S&P 500. It's up over 50% over the last year. This is a company they're doe for their innovative medicine business. Key therapeutic areas that they focus on immunology, oncology, neuroscience, infectious diseases, their medtech or medical devices segment provides a wide range of technologies for surgeries, orthopedics, vision care, incredibly profitable business. They have dozens of platforms that generate over $1 billion in sales annually. I'm not telling everyone to go out and buy Jodsted, but I will say, for my portfolio, this has historically been a sleepy stock, a great income stock. It's now one of my best-performing businesses. Sometimes those boring businesses can really be great anchors in your portfolio during periods of volatility.
Jon Quast: I love it. Just as a closing thought, as I look at my own portfolio, I feel like I'm pretty weak in dividends. I would be interested in adding a better dividend player to my portfolio just to help me diversify in that area. What I'd be looking at here is Pepsi. Pepsi is just this incredible resilient business. It has the beverages, but it also has the snacks, diversifying further into food, and a very attractive dividend as a dividend king, having paid for over 50 years. That is one area I think I'm weak in that I could definitely improve on with some better diversification. That's all the time that we have here today. Brandon, I hope we address your question adequately. I know we can do better in the future. We'll keep trying to improve this show every single time. But Matt and Rachel, thank you so much for all the insight that you brought today. I'm going to read the disclosure, and that'll be the end of this episode.
As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer Bart Shannon and the rest of the Motley Fool team for Rachel, Matt, and myself, thanks for listening, and we'll chat again soon.
