Market Volatility: Lessons from the “October Effect”
October 22, 2025
October has a reputation for being a “spooky” month for markets. History gives us plenty of examples: the crash of 1929, Black Monday in 1987, and steep declines during the 2008 financial crisis. These events are remembered by investors and contributed to what’s often called the “October Effect.”
It’s worth considering whether October truly deserves this reputation, as the reality is more nuanced. While those downturns were significant, October has also been the start of many recoveries. Over the long term, its average returns are similar to other months. The lesson here is not that October is uniquely risky, but that volatility can happen at any time.
For long-term investors, the real risk isn’t volatility itself but reacting to it. Trying to time the market, meaning selling stocks before a downturn and buying back before a rally, can be costly. For instance, if you had invested in the S&P 500 over the past 20 years, your total return would be around 10%. But missing just the 10 best days in the market during that period would halve your return to about 5.6%. Interestingly, the best days often follow the worst days, making it nearly impossible to time perfectly. While it might seem safer to get out of the market temporarily, you’re more likely to miss those critical best days.
That’s why diversification and discipline are key. A well-designed portfolio, balanced across stocks, bonds, cash, and possibly alternative investments, can withstand shocks and help keep you on track toward your long-term goals.
Rather than viewing October as a month to fear, I see it as a reminder that markets will always have unpredictable swings. The investors who do best aren’t those who avoid volatility entirely but those who follow a disciplined investment approach, remain diversified, and keep their eyes on the bigger picture.