Market Volatility and Your Retirement Portfolio: What the Historical Data Shows

Markets have been turbulent. Tariff announcements, trade policy shifts, and geopolitical uncertainty have triggered sharp sell-offs in recent months, and if you have been watching your 401(k) or IRA balance tick downward, you are far from alone in feeling the urge to act. That instinct, the desire to protect what you have built, is completely understandable. It is also, historically speaking, one of the most financially consequential impulses a retirement saver can act on.

This article does not tell you what to do with your portfolio. That decision belongs to you and, ideally, a qualified financial professional who understands your full picture. What this article does offer is a clear look at what the historical data shows about market downturns, investor behaviour, and the long-term outcomes that tend to follow different choices. Numbers, not emotions, are the best foundation for a decision this important.

The US stock market has experienced significant downturns many times over the past century: the Great Depression, the 1987 crash, the dot-com collapse, the 2008-2009 financial crisis, the brief but severe COVID-19 crash in early 2020, and numerous corrections in between. In every case, markets eventually recovered and, over long enough periods, went on to reach new highs. That does not guarantee any future outcome, but it is a meaningful pattern.

According to data from the S&P 500's historical record, the index has delivered positive returns in roughly 75% of all calendar years since 1928 (based on data compiled and maintained by NYU Stern School of Business professor Aswath Damodaran). The years that were negative were real and sometimes deeply painful, but they represent the minority of the historical record, not the majority.

What makes this relevant to someone sitting on a retirement portfolio today is the time horizon. A 55-year-old planning to retire at 65 has roughly a decade before drawing down the portfolio in earnest, and potentially 20 to 30 years of retirement spending ahead after that. Over that kind of timeframe, short-term volatility, including tariff-driven turbulence, looks very different than it does in the middle of a difficult quarter.

Periods of policy-driven market stress, including those triggered by trade disputes and tariff escalations, have historically produced heightened short-term volatility. Equity markets often react sharply to trade policy announcements. Recovery timelines have varied considerably depending on how policy uncertainty resolved, which underscores why timing the market around these events is particularly difficult.

One of the most well-documented findings in long-term market data is the outsized impact of missing the market's best trading days. Research published by J.P. Morgan Asset Management in their annual Guide to Retirement report has consistently shown that a hypothetical investor who missed the 10 best trading days in the S&P 500 over a 20-year period ending December 31, 2023 would have ended with roughly half the final portfolio value of an investor who stayed fully invested throughout. Miss the 20 best days, and the gap grows substantially larger.

The catch, and it is a significant one, is that many of the market's best single days occur within weeks of its worst days. Investors who exit during a sharp decline often do so right before a recovery rally, missing the rebound while still having locked in the losses. This pattern repeated in 2020, when markets dropped approximately 34% from mid-February to late March before staging one of the fastest recoveries on record, according to S&P Dow Jones Indices data.

Consider two hypothetical scenarios for illustration purposes. These are simplified examples intended to show directional impact only, not precise predictions:

• Scenario A - Stay Invested: A hypothetical investor with $300,000 in a diversified portfolio at age 55 stays invested through a 20% market decline, continues contributing, and remains invested for 10 years. Using a long-run average annual return assumption (which a financial adviser can help you assess for your own situation), the portfolio has time to recover and continue compounding.
• Scenario B - Move to Cash: The same hypothetical investor moves to cash or a money market fund during the decline, locking in the loss. They wait 12 months before reinvesting, missing a partial recovery. Over 10 years, the compounding gap between the two scenarios can be substantial, potentially tens of thousands of dollars, depending on the return assumptions used.

Running your own numbers using a retirement stress test that models a downturn can help make this concrete for your specific balance and timeline, rather than relying on generalised examples.

There is an asymmetry in how people think about market timing that is worth examining directly. The decision to exit feels like a single action: sell, move to safety, stop the bleeding. But it is actually two decisions bundled together. The first is when to get out. The second, and in many ways harder, question is when to get back in.

Academic research has repeatedly found that individual investors tend to underperform the broad market averages over time, and a significant portion of that gap is attributed to the buy-high, sell-low pattern that emotional decision-making tends to produce. DALBAR, a financial research firm, has published annual Quantitative Analysis of Investor Behavior (QAIB) reports for decades showing that the average equity fund investor has historically earned meaningfully less than the S&P 500 index itself over 20-year rolling periods. The gap is largely explained by the timing of contributions and withdrawals, not fund selection.

This is not a criticism of anyone feeling anxious right now. It is simply a description of a well-documented human tendency that becomes especially costly when the stakes are a retirement portfolio built over decades. The question worth sitting with is not just 'what if the market keeps falling?' but also 'at what point would I feel confident enough to reinvest, and what if the market has already recovered by then?'

It is also worth considering the purchasing power impact of sitting in cash for an extended period. In an inflationary environment, the real value of cash holdings erodes over time, adding another layer of cost to a prolonged exit from markets.

The current wave of tariff-driven market volatility has a somewhat distinct character compared to recessions driven by credit crises or demand collapses. Trade policy is, by nature, negotiable and reversible. Announcements can escalate or de-escalate relatively quickly depending on diplomatic developments, which tends to produce sharp moves in both directions.

For retirement savers, this creates a particular challenge: the volatility can feel more dramatic and newsworthy than the underlying economic impact warrants, while also being genuinely uncertain in duration. Tariffs do have real economic effects, including on household budgets and corporate earnings, and the broader cost-of-living impact is something many households are already navigating in 2026. But the market's reaction to trade policy announcements has historically included significant overreaction in both directions, which complicates the timing question even further.

What the historical data on trade-related volatility suggests, without making any predictions about the current environment, is that diversified long-term portfolios have generally absorbed these disruptions over time. The operative phrase is 'over time,' which is a qualifier that matters enormously depending on where you are in your retirement timeline.

Rather than framing this as a decision between 'stay' and 'go,' it may be more useful to think about the specific circumstances that would make a portfolio review genuinely warranted versus those driven primarily by short-term anxiety. Some questions that financial planners commonly encourage clients to consider include:

• Has your time horizon or retirement date actually changed? If you were planning to retire in 10 years before the volatility started, you are still planning to retire in approximately 10 years. A market decline does not inherently change that calculation unless it forces a change in your actual retirement plans.
• Was your original asset allocation appropriate for your risk tolerance? If the current decline feels unbearable, that may be a signal that the portfolio was more aggressively positioned than your actual comfort level warranted, which is a legitimate reason to revisit allocation, ideally with a financial adviser's guidance.
• Are you within five years of retirement or in the early years of drawing down the portfolio? This is where sequence-of-returns risk becomes particularly relevant, and where the calculus around volatility is genuinely different from someone with a longer runway. The impact of a significant loss early in retirement can differ substantially from the same loss a decade before retirement.
• Do you have a written investment policy or plan? A documented plan created during calmer times can serve as an anchor against reactive decisions made during volatile ones.

None of these questions have universal answers. They are starting points for a conversation, ideally with a qualified financial professional, rather than a checklist that leads to a predetermined conclusion.

A note on this article: The content above is intended as general financial education only. fidser. is not a registered investment adviser, broker-dealer, or financial planner, and nothing in this article constitutes personalised financial advice. Historical market performance does not guarantee future results. All hypothetical examples are illustrative only and do not represent the performance of any specific investment. Before making any changes to your retirement portfolio or investment strategy, consult a qualified financial adviser who can assess your individual circumstances, goals, and risk tolerance.