Personal Finance

What do the market's ups and downs mean for you? It depends on your age

Key Points
  • The ups and downs in the stock market provide a good opportunity for you to check in with your personal timeline and financial goals.
  • Here's how you should usually respond to the volatility, by age. 
Traders work during the opening bell at the New York Stock Exchange on March 5, 2020.
Johannes Eisele | AFP | Getty Images

It may feel that much of our lives are on pause during the pandemic. But not the stock market. Especially over the last few days. 

On Thursday, the S&P 500 tech sector experienced its steepest one-day drop since March. The Nasdaq is down more than 8% over the last two days. And stocks continued to tumble on Friday. 

Overall, the market has behaved uncannily well during one of the worst recessions and global health crises in history.

Still, drops like this one can be scary. The last thing we all need right now is another thing to worry about.

The good news is that most investors don't need to get too worked up by the market's direction on any given day. What's more important is your own path.

Troubles in the market should direct your attention to your personal timeline and financial goals, experts say. 

"If you have 40 years left to invest, a bear market right now is just noise and should be ignored — in fact, often celebrated," said Doug Bellfy, a certified financial planner at Synergy Financial Planning in South Glastonbury, Connecticut.

If you're much older?  "A stock market crash that starts the day after you retire can cause a permanent lifestyle impact if all your money is invested there," he said. 

Here's what market volatility means for you, depending on your age.


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If you're a young investor, your rate of return typically matters less than your savings rate, said James Sweeney, a certified financial planner and founder of Switchpoint Financial Planning in Lehi, Utah.

He provided an example: If you're 30 with $20,000 invested, whether you earn a 10% or a 5% return will only result in a difference of around $1,000. But, Sweeney said, "If I can save aggressively, and put an extra $5,000 toward retirement, that has a much bigger effect on my portfolio value."

This means that people in their 20s and 30s who are investing for retirement really are best off doing nothing as the market rages, said Alex Doll, a CFP, financial advisor and co-CIO at Kohmann Bosshard Financial Services in Cleveland. In fact, when you put money into your 401(k) during a downturn, you're actually taking advantage of a low-cost environment.

However, you don't want the money you need for near-term expenses in the stock market, because it has a greater chance of losing value, said Nicholas Scheibner, a CFP at Baron Financial Group in Fair Lawn, New Jersey.

Keep the savings for, say, a home purchase within the year in cash or CDs.

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The biggest mistake middle-aged investors can make is to sell at the bottom of a bear market, Sweeney said.

"Most people still have 10 or more years until they retire, which is typically more than enough time to ride out a bear market," he said. A bear market is said to have begun when a major index such as the S&P 500 drops more than 20%.

Consider this: After the 2008 downturn, when the S&P 500 plunged 56%, investment portfolios took only between one and three years to recover, for asset allocations ranging from half stocks and half bonds to 100% stocks, according to Vanguard.

Do make sure you have enough cash reserves built up to cover what is likely to be a slew of upcoming expenses, including school tuition and planned vacations, said Milo Benningfield, a CFP and founding principal of Benningfield Financial Advisors in San Francisco.

"If not, consider raising cash from your portfolio now, rather than later after markets have fallen," he said.


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As the stock market bounces up and down, older investors should avoid complacency and tweak their portfolio to make sure they're ready to exit the workforce, Bellfy said.

"I find that investors that are getting close to retirement do sometimes need to be coaxed to reduce risk and build cash reserves," he said.

How much should you have in cash? At least two years' worth of living expenses, according to Bellfy. "But more can be better if one has the ability to save up more," he said.

That way if a bear market hits just before you retire, you won't need to dig into your portfolio at reduced prices.

"Avoid the temptation to cash out your investments completely," Benningfield said. "You may have another two to four decades of spending to cover."

If you're already in retirement:

Investors who no longer receive a paycheck want to make sure they have enough of their money in cash and bonds to last them until the market heals from a possible downturn, Sweeney said.

He recommends building up between five and 10 years' worth of these reserves. So if you estimate that you'll need to withdraw $25,000 a year from your portfolio, you'd want to keep $125,000 to $250,000 in cash and bonds. (You'll also typically have Social Security and/or a pension to rely on.)

He said retired investors still need some growth assets such as stocks, particularly since people are living longer.

"In a bear market, pull from your bond portfolio to fund your lifestyle," he said. "Leave your stocks alone."