When stock markets get shaken, it can pay for investors to be patient
When U.S. stock markets swing violently, the instinct to protect retirement savings can be strong—especially when the moves happen quickly. But financial strategists and long-term investors have often argued that, historically, the better course is to wait out the drops rather than sell and try to time a return to stocks.
In a recent market roundup, the guidance emphasized that investors should keep retirement money that they do not need soon invested, while avoiding stocks for funds that must be used in the near term. The article also described how major investors have given similar counsel in past periods of shock, including after President Donald Trump unveiled global tariffs on what the report calls “Liberation Day,” after inflation surged in 2021, and after COVID-19 triggered an economic crash in 2020.
Anthony Saglimbene, chief market strategist at Ameriprise, said volatility may feel uncomfortable and could rise from there, but he also said that volatility tends to be brief when it reaches extreme levels. He added that extreme volatility often provides investors a long-term entry point to buy stocks rather than sell, according to the report’s quotation of his remarks.
The market unease has been intensified by concerns tied to the Iran war and its impact on oil flows. The fighting has largely halted most traffic in the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil typically sails on a given day, the report said. With crude storage tanks in the region filling because oil has nowhere else to go, oil producers have told markets they are cutting output, and oil prices have responded with sharp moves.
On Monday, oil briefly spiked to nearly $120 per barrel, the report said—its highest level since the summer of 2022—driven by worries that production problems could last a long time. The report also said some analysts expect prices could reach $150 if the strait remains closed, and it described a potential macroeconomic risk if elevated oil prices persist: economists refer to “stagflation” as a scenario in which growth stagnates while inflation stays high.
Despite the intensity of recent moves, the report said the scale of the drop in the broad market has been relatively contained in percentage terms. It cited that the S&P 500 was 4.4% below its all-time high, which had been set in January, as of Thursday’s close, while noting that the experience can feel worse because price swings have been steep on short time frames—often hour to hour and day to day. It also described how the Dow Jones Industrial Average has sometimes dropped by about 900 points in the morning before erasing those losses later in the day or coming close to doing so.
The report framed this behavior as part of a longer pattern. It said that while the market does not always move in exactly the same way, the U.S. stock market has a regular history of falling to steep losses before rising again, including declines of at least 10% about once every year or so. It also noted that professional investors have a name for such declines—“correction”—and that experts often view them as a culling of optimism that can prevent stock prices from running too high.
For individual investors weighing whether to sell, the report highlighted the tradeoff involved in moving out of stocks. It said that moving money into safer assets such as bonds can reduce exposure to dramatic stock drops, but that exiting requires finding the right time to get back in. The report added that market timing is difficult and that some of the best days in the U.S. stock market’s history have clustered during downturns.
The guidance then separated considerations by investor stage. For people new to investing, the report said smartphone trading apps have made trading easier and cheaper, contributing to a new generation of investors who may not be accustomed to stock-market swings. It also pointed to the potential benefit of time: with decades before retirement, younger investors can ride out portfolio volatility as compounding has time to work.
For investors near retirement, the report said the window for recovery is shorter, and it cited the need for withdrawals in retirement to last 30 years or more for some people. It said some retirees may need to cut back on spending and withdrawals after sharp downturns because larger withdrawals remove more potential compounding ability in the future.
For people who may have to raid a 401(k) now, the report said selling in a retirement account and withdrawing cash can create a “double whammy”: it can trigger taxes and a possible 10% early-withdrawal penalty, and it also eliminates the chance that investments can recover and grow over time. It noted that a 401(k) loan may be possible in some cases but comes with its own peculiarities and possible penalties.
The report also addressed investors with pensions, saying defined-benefit pensions—fewer workers still have them—provide a defined payment regardless of what the stock market does. It described other differences during this round of volatility as well, saying that when stocks fall, prices for Treasurys and gold often rise as investors shift toward assets considered safer, but that in this environment Treasurys have been hurt by worries about high oil prices and inflation. It said gold’s price has also struggled at times when Treasury yields have climbed, because gold pays no interest, making it less attractive when Treasurys are offering more yield.
Finally, the report said no one knows how long the current volatility will last, and it warned against claims of certainty about the timing of recovery.