The US stock market has delivered extraordinary returns over the past decade, even though the gains haven’t been evenly distributed across company sizes. Looking at the 10-year annualized returns through July 2025:
These returns are above historical averages, with large-cap stocks clearly leading the pack by a significant margin. 2025 has been a solid year after some spring volatility related to the beginning of the tariffs. It’s been such a phenomenal run, particularly for large-cap stocks, that it leads many investors to complacency. They hold the dangerous belief that exceptional returns are the new normal.
But history teaches us that market cycles don’t last forever. The current fantastic run of US stock performance will eventually come to an end. The question isn’t if, but when, and most importantly, whether you’ll be prepared.
The Risks Ahead
What will end this remarkable run? Unfortunately, we don’t know. We also don’t know why it’ll end. It could be slowing economic growth, geopolitical events, inflation, interest rate changes, or something completely unexpected. Market cycles always end, but they rarely end for the reasons experts predict. The catalyst doesn’t matter as much as the certainty that one will eventually come. Smart investors are already taking steps to prepare, not because they can predict the future, but because they understand that all market cycles turn.
Four Ways to Prepare for What’s Next
1. Start Derisking 5-7 Years Before Retirement
The traditional advice to derisk 10-15 years before retirement is overly conservative. Research on sequence of returns risk shows that portfolios are most vulnerable in the 5 years before and 10 years after retirement.
That far before retirement (15 years), market crashes will have minimal or zero impact on your retirement, but this risk jumps dramatically in the final years before you stop working. Consider reallocating your entire portfolio, and moving to something like 80/20 or 70/30 stocks/bonds 5-7 years before retirement.
2. Diversify Globally
Most US investors are dramatically underweight in international stocks. The global market cap split is roughly 62% US and 38% international, but few portfolios reflect this balance. International stocks currently offer better valuations, higher dividend yields, and have at times outperformed US stocks in different cycle. This cycle, of course, has been different from that, but I don’t think it’s realistic to say that that trend will continue forever. And this year could be the start of a new trend, as international is up around 21.7% YTD while the overall US is up around 9.4%. The recent revival in international markets may have several years left to run.
3. Don’t Abandon Your Emergency Fund
In a world of soaring stock returns, cash can feel like dead weight. But economic uncertainty makes emergency funds more important than ever. Whether it’s job market volatility or unexpected expenses, having readily available cash provides crucial flexibility when markets turn volatile. With high-yield savings accounts and money market funds offering rates above 3.5%, that’s actually pretty darn good rate, especially compared to the less than 1% rates we had just a few years ago.
4. Resist Recency Bias (of long term compounding)
There are a lot of people who rightfully say to avoid cash and stay fully invested in stocks as that will accelerate your long term compounding returns. And yes, long-term compounding is powerful. But using it to justify putting everything in US stocks is dangerous thinking. This is classic recency bias. The past 15 years has made “buy and hold forever” and “always reinvest” look brilliant, but that’s because we’ve lived through an extraordinary period.
It made perfect sense to keep reinvesting for the last 15 years, but assuming this pattern will continue indefinitely is precisely the kind of thinking that gets investors in trouble. The investors who weather market cycles best are those who maintain diversification and realistic expectations, not those who bet everything on the continuation of recent trends.
This same thinking (of avoiding recency bias) also applied to something like large cap funds, which have performed all other asset classes the last 10-15 years. While it might feel right to put everything into the S&P500, at some point the wheels will turn and that asset class won’t outperform anymore.
The Bottom Line
Exceptional returns breed overconfidence. The very success of US stocks over the past decade has created the complacency that could lead to future risk – not necessarily because stocks are about to crash, but because investors have become too comfortable with one strategy.
Smart investors prepare for multiple scenarios. They diversify across geographies, gradually derisk as they age, and resist the temptation to chase yesterday’s winners. The US stock market’s 15 year run has been remarkable, but like all good things, it won’t last forever.
The question is: will you be ready when it doesn’t?
I hope so. And if you need any help with that, go to here and book a free consultation.