Every few years, something happens that feels like it should change how you invest. A referendum result nobody predicted. An election. A sudden drop in the handful of stocks that had been carrying the whole market. The natural response is to ask what happens next.
That is the wrong question. The better one, borrowed from Mike Piper of Oblivious Investor, is whether the event merits a change to your portfolio. For most retirees the honest answer is no — because the portfolio was designed around your withdrawal schedule, not around a forecast. This article covers how to build it that way, and how to hold on to it when markets get loud.
Why Volatility Feels Different Once You Retire
While you are working and saving, you invest for growth. Steady income gives you the ability to ride out downturns and even buy more on the way down.
Once you retire, the goal changes. The portfolio that got you to retirement may not be the right portfolio to get you through it. It now has to produce reliable cash flows for the rest of your life across a range of market conditions. Rather than controlling the volatility of your account value, you are managing the volatility of your income so it stays as consistent as possible.
That distinction matters because a withdrawal made during a downturn is a permanent loss of shares. The same 20% decline that is a buying opportunity at 45 can be a real problem at 65 if you are forced to sell into it. This is why the transition into retirement deserves its own investment thinking.
“The Market” Is Not Your Portfolio
When the news refers to “the market,” it usually means the S&P 500 or the Nasdaq. Unless your entire portfolio sits in those indexes, those headlines are describing something other than your account.
There have been stretches where the headlines about declining U.S. stocks were relentless while international developed markets, emerging markets, U.S. large-cap value, and the aggregate bond index were posting positive year-to-date returns. A broadly diversified portfolio can be modestly up while the front page reports a selloff.
The concentration problem inside the S&P 500
The S&P 500 looks like broad diversification: 500 companies across technology, health care, consumer goods, and finance, available at very low cost. That reputation is largely earned. But the index is market-cap weighted, meaning the largest companies exert the most influence on its return. Apple moves the index far more than a mid-sized holding does.
By 2025, on Sensible Money’s analysis, the top 10 companies had climbed to roughly 35–40% of the index, up from a historical average of 20–25% — the highest concentration in about 50 years, exceeding the tech bubble, the 2008 financial crisis, and the COVID-era peaks. Sensible Money advisor Oscar Vives compares it to making a stew: you want a balance of ingredients, but if a jar of salt goes into the pot, it does not much matter how good everything else is.
That concentration has boosted returns over the past decade. The concern is what it means on the way down. When a small group of companies drives most of the index’s gains, a decline in those same names can pull the whole index down quickly. Periods of high concentration — the dot-com bubble, the Nifty Fifty era — have historically been followed by weaker returns for investors who were not diversified beyond the leaders.
What to do about it
The answer is not to abandon the S&P 500. For most investors it will remain a core holding. It is to treat it as one component rather than the whole plan:
- Diversify internationally. Global markets do not move in lockstep with U.S. markets. International developed and emerging market stocks can provide balance when domestic markets struggle.
- Consider factor exposure. Research has identified characteristics — value orientation, smaller size, higher quality — historically associated with higher long-run returns. Factor strategies still have losing years and offer no assurance of higher returns; what they offer is a broader base.
- Look at how a fund manages concentration. Some fund families build broadly invested portfolios that deliberately cap top-holding weight. In certain Dimensional Fund Advisors funds, the top 10 positions sit around 20–22%, closer to the historical norm.
Equal-weighted index funds are another option, though they carry their own tradeoff: they give a struggling small-cap the same influence as the largest company in the index.
The broader tradeoff is worth naming plainly. A more diversified portfolio will have years where it trails the S&P 500. That gap is called tracking error, and it is uncomfortable to watch. The point of accepting it is not to beat an index — it is to reduce your dependence on a handful of companies for income you cannot easily replace.
Build the Portfolio So a Downturn Doesn’t Force a Sale
The most durable protection against volatility is structural: hold enough in safe assets that a bad market does not dictate when you sell.
A common approach is to hold roughly four to eight years of planned spending in high-quality bonds and cash equivalents. Some plans extend this using time segmentation, sometimes called a bucket or lockbox approach: you match investments to the point in time you will need them. Safe holdings — CDs, agency bonds, municipal bonds, short-duration or defined-maturity bond funds — cover roughly the first five to ten years of withdrawals. The remainder is invested for long-term growth across multiple equity asset classes.
The arithmetic is simple. If you expect to withdraw $25,000 a year and you are five years from retirement, roughly $125,000 belongs in accessible, stable investments. That reserve is what lets you leave the growth portion alone during a decline. The cost of holding it is opportunity: that money is not compounding at equity rates.
Time segmentation is not the only workable structure. A total-return portfolio with annual rebalancing and systematic withdrawals is an industry standard. Income annuities can convert part of a portfolio into contractual cash flow, at the cost of flexibility and access to principal — our second-opinion framework on annuities walks through when that tradeoff makes sense. An interest-only approach avoids selling shares but gives up growth potential, and reaching for high yields carries its own risk: dividends can be cut suddenly, as they were in 2008 and 2009, taking principal down with them.
There is no perfect retirement portfolio. Most workable plans blend these approaches, sized against a projection of your actual withdrawal needs. See also our overview of retirement investments for ages 55 and up and where your money will come from in retirement.
Rebalancing and De-Risking: Deciding When to Act
Rebalancing means moving money from what has done well into what has not, to keep your allocation where you decided it should be. It feels backward — why sell the winners? — but it is how you keep your risk level from drifting away from your plan. As Oscar Vives puts it, borrowing from Wayne Gretzky: skate to where the puck is going, not where it has been. The funds that lagged in your 401(k) over the past 15 years are not necessarily the laggards of the next 15.
There are two ways to decide when to act.
The tolerance-band approach. You set an allocation — say 60% equities, 40% bonds — and a range around it. If equities can drift between 57% and 63%, then at 65% you rebalance back to target. This is the industry standard and it manages short-term volatility well. Its limitation is that it says nothing about your retirement income goals.
The planning-based approach. You project, year by year, roughly where your account values need to be for your plan to work, then measure against that. When strong equity returns put you ahead of target, you take the excess gains and lock in a year or two of future income by buying a safe investment that matures when you need it. This is asset-liability matching, the same logic pension plans have used for decades.
The planning-based approach lets your stock-to-bond mix drift across a wider range than a tolerance band allows, which some investors find unsettling. In exchange, it ties each de-risking decision to whether you are actually on track. If you are unsure which camp you are in, stress-testing your retirement income plan is a reasonable place to start.
Elections, Headlines, and Events You Can’t Trade Around
Political outcomes feel like they should move markets in a predictable direction. The historical record is less dramatic than the anticipation. An analysis from BTN Research broke S&P 500 returns over a 50-year period out by which party controlled the White House and Congress. Returns were positive under each configuration — reported as +5.4% under a Republican president with a Democratic-led Congress, and +17.5% under a Democratic president with a Republican-led Congress. Past results do not predict future ones, and the underlying periods are not directly comparable, but the takeaway holds: the spread is narrower than most pre-election forecasts imply.
The same pattern shows up around one-off shocks. When the Brexit referendum passed in June 2016, markets fell sharply for two trading days. One week later, on July 1, the S&P 500 was not down at all, developed international markets were down barely over 5%, and emerging markets were down roughly 1%. That is normal volatility, and it resolved faster than the commentary about it.
The durable principle: an investment strategy designed to fund the rest of your life should not change because of a news event. What should trigger a change to your asset allocation is a change in your financial situation or your long-term goals — not an outcome, and not a forecast about one.
The Half of the Problem That Isn’t Math
Even when the numbers are clear, uncertainty takes a toll. Investing is not a purely rational process. Many investors still carry the 2008 financial crisis with them; others absorbed a Depression-era caution from parents or grandparents. Those experiences shape how risk feels today even when the circumstances differ.
Two facts help put the feeling in proportion. Corrections — declines of 10% or more — occur every few years. Bear markets, declines of 20% or more, have historically occurred roughly every four to five years. Unsettling in the moment, but not unusual, and a plan built with these cycles in mind is designed to absorb them.
It also helps to manage your inputs. Take regular breaks from financial news and turn off market alerts. Most platforms are built to hold your attention rather than to inform your decisions — the more fear-based content you click, the more you will be served.
Finally, watch what you measure yourself against. The S&P 500 does not share your timeline, your risk tolerance, or your income needs. It does not retire. You do. A better benchmark for progress in retirement is your own plan: whether your portfolio can reliably generate the income you need for as long as you need it.
The Bottom Line
Volatility is not a problem to be solved. It is a condition to be planned around. A portfolio that holds several years of spending in safe assets, diversifies beyond the concentrated top of the U.S. index, rebalances on a defined rule, and is measured against your plan is built to keep paying you through downturns — not to avoid them.
If you are nearing retirement without a defined strategy for when and how you will take money out, that is the gap worth closing. It matters more than what the market does next quarter.
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Written by Dana Anspach, founder and CEO of Sensible Money, LLC.
This article is educational and is not individualized investment advice. Sensible Money, LLC is a registered investment advisor. All investing involves risk, including possible loss of principal. Diversification does not eliminate the risk of loss. Past performance does not guarantee or predict future results. Index returns are shown for illustration; you cannot invest directly in an index. Figures cited reflect the sources and dates noted and may have changed since publication. Consult a qualified professional about your own situation before acting on anything described here.
