Big Gains, Big Pullbacks: Why Both Matter

The secret to long-term gains is accepting pullbacks.

To win more often, be OK with losing

Many of my clients have invested their hard-earned money with me for over a decade. By now they've been hardened against the temporary losses that come as part of the investing gig.

Over time, I've learned you cannot be a successful stock investor without accepting losses. And if you are investing for long-term goals, those temporary setbacks should not cause you too much distress.

Consider thinking of the market as a giant balloon. When it trends upward, the balloon stretches. When it dips, some air comes out.

In healthy markets, there is a natural balance. The balloon is not too full, and not too empty.

In frenzied markets, the balloon inflates far too quickly. The pressure building inside stretches it to its limit until it eventually pops (yikes!), sending all the air out at once.

Interestingly, the market often follows a universal mathematical pattern called the Fibonacci sequence. After an uptrend, pullbacks retrace (from their highs) back to certain levels, with the most common being about 50 percent.

Looking at the SPDR S&P 500 ETF chart below, you will see the long uptrend from late 2022 to early 2025. Along the way, small pullbacks (red arrows) let out a little air. Then, when Trump’s tariffs hit, the market corrected to the 38 percent Fibonacci level (green arrow).

Source: Stockcharts.com as of 9/5/2025

This was shallower than the usual 50 percent, likely because of those smaller dips along the way.

It's worth mentioning I do not suggest trying to time/trade based on Fibonacci levels, since we can never know in advance which level the market will reach. Pullbacks of over 50% can often happen depending on volatility and overall market conditions.

Instead, I use these levels to highlight a larger truth: the longer and stronger an uptrend runs, the greater the chance that a meaningful correction will follow. The big upswings are wonderful, but they come at a price if the market hasn’t let out any air along the way. 

Perhaps we should start cheering these temporary downturns instead of fearing them!

If you are going to take on the risk (and gains) of stocks, you must accept the market balloon for what it is.

I am not making a market call (only fools would do such a thing!), but the sell-off earlier this year looked like a healthy reset. With the market not only recovering but pushing on to new highs lately, buyer enthusiasm remains strong.

At some point this will shift, but there are few signs of it happening in the near term. Even as we close out the historically challenging market month of September.

Qualified Charitable Distributions

As we approach year-end, remember that certain aged clients are required to take out Required Minimum Distributions (RMDs). One way to potentially avoid paying income taxes on these withdrawals is by making a Qualified Charitable Distribution (QCD).

If you’re charitably inclined and do not particularly need the RMD funds for personal spending, a QCD can be a wonderful option. Not only does it help lower your taxable income, but it also supports causes that matter to you.

If this sparks your interest, I’d be glad to talk with you about how it might fit into your overall plan.

You can book a free consultation with me at any time by clicking here.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.