Mitigating Volatility

Being a witness to the changing seasons is a beautiful experience. The fall season elicits beautiful displays of vivid color as we say goodbye to the liveliness of summer and turns to a deeper, slower time of year that evokes feelings of comfort. A common tradition around this time of year are visits to pumpkin patches and/or apple orchards and selection can be very important to the experience - the right selection of a pumpkin is key to your personal expression of the holiday on display, and the right selection of apples can make your pie sweet or tart. 

 The right selection and a good pie chart have also been important in our client portfolios this year. Diversification has been the key to a successful portfolio as this market season has shifted. We have seen diversification add value by mitigating volatility and through exposure to categories that have outperformed following a couple of years of highly concentrated performance. As we mentioned in our last quarterly commentary, we experienced a pullback in March into early April due to uncertainty and concerns around the looming tariff deadline. In this scenario, portfolios benefited from investments in categories that had less exposure to proposed tariffs. These more sensitive categories have since recovered, and as the dust settled, the value of diversification shifted to exposure in areas that were outperforming.  

The S&P 500 was up 8.1% this quarter and 14.8% for the year as of September 30, 2025. 1 Most of this performance can be credited to the end of the second quarter and through the third quarter as the market recovered from the volatility experienced in April. International performance has also contributed to portfolio returns this year and has been attributed to a few factors, but most notably a weakening of the US Dollar. It has been over a decade since we have seen international investments outperform the US on a year-over-year basis. It is still to be determined whether this year will maintain its initial trend, but for now, an allocation to this area has strengthened client returns and reduced volatility. We now need to consider if there may be additional opportunities in international investments in the upcoming months/years. Potential risks could include geopolitical turmoil, fiscal deficits abroad, and emerging tariff fraud. Opportunities may still exist if we believe the dollar will continue to be soft, and competition globally could add to earnings growth for well positioned companies internationally. 

As tariffs begin working their way through the system, we anticipate some delayed effects. Increased prices could keep inflation slightly elevated, but tax breaks may have an offsetting effect to keep consumer demand from waning too much. The Fed cut rates by 0.25% in September. This modest shift may be an indication that the Fed is cautiously approaching rate cuts to maintain the ability to adjust to changing factors, if needed.  

We will continue to revisit the allocation and the ideal selection for your goals and tolerance. We value your feedback and are grateful for your continued trust in Legacy. As we approach the holiday season, please know that you and your families are thought of with kindness and warm wishes. We look forward to seeing you in the upcoming months.  

^{[1] Morgan Stanely, Guide to the Markets, September 30,2025, pg. 15} 

^{IMPORTANT DISCLOSURES:  The opinions presented in this communication are subject to change without notice and no representation is made concerning the actual future performance of the markets or economy.  Information obtained from sources is considered reliable but is not verified.  The research and other information provided herein speak only as of its date.  We have not undertaken and will not undertake any duty to update the research or information or otherwise advise you of changes in the research or information.  The performance information presented is not an indication of future results and index data is provided for market reference purposes only.  This is not an offer to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any trading strategy.  This document is the property of Legacy Financial Advisors and is intended solely for the use of the Legacy client, individual, or entity to which is addressed.  This document may not be reproduced in any manner or re-distributed by any means to any person without the express consent of Legacy.  This material is for educational purposes only.  Mis-transmission is not intended to waive confidentiality or privilege.}