The U.S. stock market has been extremely volatile since the announcement of new tariffs. On April 7, it briefly dropped over 20% from its February peak. The CBOE Volatility Index (VIX), often called the “fear index”, surged past 60—the highest since August last year.
This sharp drop has caused understandable concern, especially those nearing or already in retirement. TIAA reports a surge in retirement account inquiries, with online activity up 30%. Watching the value of your 401(k) and IRA fall can be unsettling.
In this post, I’ll share key insights from Morningstar, followed by practical advice on how to manage your investments during turbulent times.
What we can learn from 150 years of Market History
Morningstar highlights research by Paul Kaplan, author of Insights into the Global Financial Crisis. His data shows that $1 invested in US stocks in 1870 would have grown to $30,711 by 2025. That remarkable growth wasn’t a straight line – there were 19 major market crashes – but the market always recovered and reached new highs.
Kaplan created a “Pain Index” that evaluates how much stocks dropped in a crash and how long they took to recover. In the last 150 years, the most notable crashes are:
1. 1929 Great Depression -79%
2. The lost period: Dot.com followed by Recession -54% (2000-2013 recovery)
3. 1973 Crash -52% (Vietnam war, Watergate, Oil driven inflation)
You may remember most recent crashes Ukraine War (2021): 30% decline and COVID-19 (2020), 20% decline. Ukraine War crash lasted for 1.5 years, while COVID-19 crash recovered just in 4 months
The lesson? Market crashes are inevitable. What’s unpredictable is how long recover will take. That’s why Morningstar emphasizes diversification and aligning your portfolio with your time horizon and risk tolerance.
What you can do in a volatile market
1. Keep a long-term perspective
Daily headlines can be overwhelmiing, but try not to lose sight of your long-term goals. Selling in a downturn locks in losses and misses the recovery. For example, those who held steady during the 2020 COVID crash saw full recovery within six months.
2. Stick with regular investing
Market dips can be good buying opportunities. Warren Buffett famously said: “Bad news is an investor’s best friend.”
Dollar-cost averaging – investing a fixed amount regularly – helps you buy more shares when prices are low, reducing the impact of short-term volatility. Set up automatic contribution or savings to your retirement account and stay consistent.
3. Understand your risk tolerance
Ask yourself: How much fluctuation can I emotionally and financially handle? Higher-return assets usually come with higher volatility. If you are feeling unusually anxious, it may be time to reassess your asset allocation.
4. Retirees: Use your cash reserves
Keep at least one year’s worth of living expenses in cash. This allows you to avoid right out market downturns without having to sell investments at a loss. If you are still in the accumulation phase, consider allocating a portion of your retirement savings to cash to prepare for future volatility.
In Summary:
- Stick to your long-term plan
- Keep investing regularly
- Stay diversified and trust in the market’s resilience
Market downturns are stressful – but with perspective, discipline, and the right strategy, you can navigate them successfully.
If you would like to review your financial situation, explore more effective retirement savings strategies, or develop tax efficient withdraw plan, we are here to help. Email us to schedule an appointment: Info@kamitanifs.com