06 Aug 2026 Finding Your Balance
As I write this post, the S&P 500 and DOW Jones are reaching new all-time highs. Would you have believed me if I told you that back at the end of March, when the S&P 500 was down almost 7% from the start of the year? It sure did not feel possible based on global news and the headlines.
I wanted to use the brief this week to look back at some of the main market themes driving performance in 2026 thus far as they point back to the same lesson: a diversified portfolio is both a return strategy and a behavior strategy. Headlines and returns can diverge, and that’s when remaining disciplined in your investment strategy can pay off. Carl Richards coined the cost of not staying invested the Behavior Gap, the difference between an investment’s return and an investor’s return driven by decisions made along the way. Diversification is one of the tools we have to close that gap. Let’s look at where we’ve seen that in play this year.
Inflation is still top of mind, with energy prices particularly impacted by the conflict with Iran and the Strait of Hormuz. Global conflicts were responsible for much of the market’s pullbacks in March. The Federal Reserve has held interest rates steady this year after decreasing them some at the end of 2025, because inflation has not decreased quite to the desired levels (although it has declined some overall). And yet, holding bonds in your portfolio still served well as a ballast during times of market volatility to cushion the March equity drawdown. The US 7-10 Year Bond Index year-to-date return through the end of July was -1.37%, and the 12-month trailing yield is about 4%. Diversification did its job and hopefully allowed investors to remain invested during March’s market decline.
International equities are doing well too, benefitting from a depreciating US dollar and European rally, although they still have a long way to go to catch up to US performance over the last 15 years. The MSCI ACWI Ex USA Index year-to-date return through end of July was 14.08%.
Then there’s the Magnificent 7. Companies continue to spend tons of money on AI investments. These stocks have dominated headlines this year but also took investors for a volatile ride if owned individually. For example, if you owned a portfolio of all 7, equally weighted, that portfolio would have returned just .49% in 2026 through the end of July. Compare that to the Vanguard 500 Index, which was up 10.03% for the same time period, and you have a good reminder of why diversification matters for returns, not just for comfort. This chart below depicts a hypothetical $10,000 invested at the start of the year in each portfolio.
Returns shown reflect total return, including dividends.
Drill into monthly performance and the volatility really shows up. The first chart below shows the returns by month, and the second shows the total return from January through July 2026 alongside the max drawdown experienced along the way.
This is a helpful visualizer as a case for portfolio diversification, which helps smooth the ride so you can remain disciplined. Even in an all-equity portfolio, like the Vanguard 500 Index represents above, the market returns over the year so far are much easier to stomach than the roller coaster of some of those individual stocks. As a long-term investor, I want to own those positions, but I just don’t want to have my investment portfolio return entirely dictated by their whims.
Bear with me with one more chart today. It’s worth looking at the top 10 performers of the S&P 500 so far in 2026.
Notice that the top performers are not the top weighted components, which is a benefit of owning the index fund: you participate in it all, without having to correctly guess which will lead in any given timeframe.
Sometimes market returns seem inconsistent with the news. It might not feel like the market should be at all-time highs right now, but feelings aren’t always facts! Which brings me to another important investing truth – stay the course. Let the components of your diversified portfolio do their job and help you keep your balance along the ride.
And, at the same time, take the time to notice what feelings bubble up when you hear headlines or look at your portfolio. Some investors remain optimistic at market highs and some investors feel anxious jitters, waiting for something to drop. Like Geoff wrote last week, “The Best Is Still Ahead, The Worst Is Still Nearby.” We don’t know what is around the corner, so let’s prepare for the inevitable downturns while maintaining confidence in your long-term strategy. We can help talk through your concerns and help you remain on course.
The content above is for informational and educational purposes only. The links and graphs are being provided as a convenience; they do not constitute an endorsement or an approval by Beacon Wealthcare, nor does Beacon guarantee the accuracy of the information.
