The Escalator and the Yo-Yo — How I Set Client Expectations in Volatile Markets

Every January, I start getting the same questions from clients: 

“What’s your prediction for 2026?” 
“Where do you think the market is going?” 
“Is now a good time to invest?” 

I get it. When you’ve worked hard for your money, or you’ve just inherited it and you’re suddenly responsible for a large amount, market volatility can feel like a personal threat. And if you’re new to investing, it can be even worse, because you might assume the market is supposed to behave like a smooth, predictable machine. 

But it doesn’t. 

The biggest expectation gap I see 

A lot of inexperienced investors walk in with an “8–10% per year” idea in their head. Not because they’re naïve, but because they’ve heard it repeated enough times that it starts to sound like a guarantee. 

Then reality hits. 

If someone invested at the beginning of 2020, they experienced that sharp correction in March and April. If they invested at the beginning of 2022, they saw one of the roughest years where both stocks and bonds got hit. And that’s the moment when the phone call comes: 

“Why is my account down? I thought this was supposed to go up every year.” 

That’s why, in my opinion, one of the most important parts of my job is setting expectations early—before the first bad quarter ever shows up. 

The visual I use: a kid on an escalator 

Early in my career, I heard a simple visual that stuck with me: Picture the stock market like a child on an escalator. The escalator is steadily moving upward over time. But the child is playing with a yo-yo—so the yo-yo is constantly going up and down.  

That’s what investing feels like. 

The long-term trend has historically been positive, but the short-term experience can be all over the place. And depending on when you start, your early experience might feel amazing—or terrifying. 

People assume “long-term” only applies to younger investors. 

Sure, if you’re in your 20s or 30s investing for retirement, you can usually afford to ride out more volatility because your time horizon is long. But here’s what I tell many of my clients in their 60s: 

You still might have 20 to 30 years ahead of you, possibly more with modern medicine. That means part of your money may still need to grow aggressively enough to last, not just for you, but potentially for future generations as well. 

How I organize retirement money: short-term, mid-term, long-term 

In my practice, I like to break things into “time buckets.” 

• Short term: typically one to two years of cash equivalents to cover income needs 

• Mid term: money that may be needed in roughly 4–15 years 

• Long term: money that can stay invested for the future 

That short-term bucket matters more than most people realize. When markets correct (and they will), you don’t want to be forced to sell equities at the wrong time just to fund monthly spending. Having cash, dividends, or bond income available gives the portfolio time to recover. 

Another expectation issue I’m seeing more frequently is people benchmarking everything to the S&P 500. 

The S&P can be a useful reference point, but we’ve also seen periods where a huge portion of the return comes from a small handful of stocks. So even though it sounds diversified (500 companies!), it can behave much more concentrated than people realize. 

At the same time, diversification has proven its value. Last year, bonds were up about 7% after a rough stretch, and international stocks did phenomenally well, actually leading the way after a long period of US dominance. 

That’s a reminder: leadership rotates. Concentration doesn’t last forever. 

I’m less interested in “Did we beat the S&P?” and more focused on “Did we hit the return we need to make your plan work—without taking risks you can’t live with?” 

In a real financial plan, we use a conservative projected return. Not because I’m pessimistic—because I’d rather your plan succeed with realistic assumptions than “work” only if markets deliver 12% every year. 

Then, when we have good years (like the ones that outpace the plan), they help offset the inevitable years that are lower—or negative. 

That’s how I explain volatility without alarming anyone: 
It’s not a flaw in the system. It’s part of the deal. 

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