How to help protect your retirement savings in a down market

Market uncertainty has always been a part of investing, which can leave you wondering how to keep your retirement plans steady in the face of a down market.

When you notice signs of a recession and a declining stock market, diversifying your portfolio and avoiding making impulsive financial decisions are among the smartest things you can do. Here, we’ll talk about why.

While no one can predict exactly how a recession is going to unfold, there are always signs to look out for. Recessions usually build over time as pressure develops in different parts of the economy.

The first common red flag is rising interest rates. Most businesses rely on borrowed money to grow, whether that’s for new equipment, real estate or expansion projects. But when borrowing becomes more expensive, businesses slow hiring and pause or cancel expansion plans. Instead of focusing on growth, they shift more toward paying down existing debt. This resulting slowdown can affect hiring and lead to layoffs, which then ripple across the economy.

The second recession warning sign is declining consumer confidence. If you feel uncertain about your finances or your financial future, you may find yourself cutting back on purchases. Since consumer spending drives a large portion of economic activity, that often leads to slower growth.

Financial imbalances are a third concern. Periods of rapid growth sometimes lead to higher levels of debt and inflated asset prices. Over time, these conditions can become difficult to sustain, putting pressure on banks, businesses and households. External shocks, like global conflicts, supply chain disruptions or changes in energy prices, can then tip an already fragile economy into a recession.

Finally, there’s the yield curve, which tracks interest rates on short-term versus long-term government bonds. Historically, when short-term rates rise above long-term rates, known as “inversion,” a recession can follow. These changes often add more pressure to borrowing costs and lending activity, making conditions feel more strained.

The highs and lows of the stock market can leave watchers and investors like you grappling with mixed signals. Short-term data may point to a weakening economy or a temporary dip within a longer bull market. Meanwhile, long-term outlooks still could suggest slow but steady growth.

So, when does that affect your portfolio? It’s best to assume it always will, which is why it’s important to prepare your finances to weather volatility.

“The best way to prepare for market volatility is not to be surprised by it,” says David Royal, executive vice president and chief financial & investment officer at Thrivent. “Have a conversation with your financial advisor and be sure you understand how your current financial strategy is positioned to meet your long-term goals. Remember, too, that times of volatility can be potential opportunities, depending on your financial goals.”

The New York Stock Exchange (NYSE) was formally established in 1792 under the Buttonwood Agreement. Throughout the 19th and early 20th centuries, stock markets became central to economic growth, financing railroads, industrial expansion and technological progress.

Benchmarks like the Dow Jones Industrial Average, created in 1896, helped track the performance of major companies and gave investors a clearer sense of overall market trends. As participation broadened, stock market investing grew from a niche activity for mainly wealthy people into something more accessible to working-class individuals.

But one thing that has always been consistent is the stock market’s history of ups and downs. Dramatic booms and unsettling crashes are about as common as grass is green. From the Wall Street Crash of 1929 to Black Monday of 1987 to the 2008 financial crisis, markets can fall sharply due to economic imbalances, speculation or systemic risks.

Despite these setbacks, companies innovate, populations grow and productivity improves. These forces tend to push corporate earnings higher, which in turn supports rising stock prices. While individual companies may fail, diversified markets have historically benefited from the overall expansion of economic activity.

To help ensure your savings are there when you need them, you can create or modify your financial strategy to prioritize diversification and financial products that support your goals. Stocks, bonds, real estate, annuities, cash and other assets may be combined to provide a reliable stream of income. A mix of liquid and illiquid assets can help you weather the expected ups and downs of markets. Consider diversifying your portfolio based on your risk tolerance. However, note that there is no guaranteed way to avoid the risks inherent to investing.

If you have short-term income needs in a volatile market, predictable and reliable retirement income solutions such as cash, annuities, certificates of deposit, some bonds and Treasury inflation-protected securities may be worth considering.

In the short term, markets can be influenced by fear, speculation, geopolitical events and changes in interest rates. Prices may swing dramatically, sometimes disconnecting from underlying business fundamentals. But over time, the market generally has reflected the upward trajectory of economic development.

So, does the market have a strong track record of recovery? Historically, yes, with an important caveat. Recovery has not always been quick, predictable or evenly distributed. Some periods required patience over years, even decades. Investors who remained diversified and maintained a long-term perspective were more likely to benefit from eventual rebounds, while those attempting to time the market often faced greater risk.

Even seasoned investors feel the pull of uncertainty during volatile stretches, but those periods eventually pass. As you continue building and adjusting your portfolio, focus on what you can control: maintaining balance, staying diversified and keeping your long-term goals in sight.

To help ensure your savings are there when you need them, consider these seven tips.

1. Stay invested, but review your allocation. Don’t panic and pull your money out when the market gets shaky. Just make sure your money is still spread out in a way that makes sense for your life right now.
2. Increase diversification across asset types. Spread investments across stocks, bonds, real estate and cash to reduce reliance on any single asset class. Your well-diversified portfolio means if one source of income drops, the others can help balance it out.
3. Build a one- to three-year cash buffer. Set aside enough easy-to-access money to cover your bills. This helps prevent you from needing to sell long-term investments during market downturns.
4. Rebalance your portfolio. Periodically adjust your portfolio, and shift things around if one area has grown too much or too little. This may involve selling assets that have grown and reinvesting in those that have lagged.
5. Reduce high-risk exposure. Evaluate and potentially scale back investments that carry higher volatility or uncertainty, especially if you are nearing a point where you need the funds. This can help protect against significant losses during market declines.
6. Protect income sources. Consider incorporating stable, income-generating assets such as certain bonds, annuities or dividend-paying investments into your portfolio. Reliable day-to-day income streams can provide financial stability regardless of market conditions.
7. Work with a Thrivent financial advisor. A Thrivent financial advisor can help tailor a strategy based on your specific goals, risk tolerance and time horizon. They also can provide guidance during uncertain markets to keep your plan on track.

There’s no one-size-fits-all answer, but the safest options are typically cash equivalents (like money market funds or CDs), high-quality bonds, and certain types of annuities that offer principal protection. These options tend to provide more stability when markets fluctuate—though they may come with trade-offs like lower returns or reduced liquidity.

To understand how to balance safety and growth, it’s helpful to know the three broad investment categories:

• Stocks offer the highest potential for long-term growth, but they’re also the most volatile and can experience sharp losses. 
• Bonds are generally more stable and offer regular income, acting as a buffer during downturns—though they still carry risks tied to interest rates and economic conditions. 
• Cash is the most conservative option and provides stability, but it may lose value over time due to inflation. 

A diversified portfolio can help manage risk and weather volatility. You also might consider investments like Treasury inflation-protected securities (TIPS) to help safeguard part of your retirement income.

Diversification does not ensure a profit or protect against loss in a declining market. However, it is an effective way to help build multiple income streams for living in retirement and provide support when you need it. Remember that diversification can help reduce market risk but does not eliminate it.

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When the market dips, the instinct to pull your money out can be strong. After all, who wouldn’t want to avoid losses during a market correction? But timing the market—getting out before a downturn and back in before the rebound—is incredibly difficult to pull off. It requires predicting not just when to exit, but also when to re-enter at just the right time.

Market returns over a long period of time can be driven by a handful of strong performing days. Staying invested and avoiding the temptation to time the market can provide the best chance to catch those strong performing days, which often come on the heels of a downturn.

Even seasoned investors rarely get the timing exactly right. That’s why many experts recommend avoiding making emotional decisions and to stay invested and focused on your long-term goals rather than reacting to short-term swings.

In most cases, you should continue to fund your IRA or 401(k), especially if retirement is still years away. These retirement accounts are designed for long-term growth, and continuing contributions during a downturn can allow you to buy investments at lower prices. Over time, staying invested through ups and downs has historically helped outpace inflation and build retirement income.

If you’re getting close to retirement or already retired, it’s a good time to evaluate your portfolio with a financial advisor and consider rebalancing. Make sure your investments are aligned with your short- and long-term income needs.

Also, don’t overlook employer matching. Even during market declines, matching contributions to a 401(k) can significantly boost your retirement savings.

The security of an annuity depends on the type of annuity you have. Every type of annuity carries its own unique risks and rewards. For example, fixed annuities are relatively low-risk, guaranteeing income in retirement at a steady growth rate—often around 2% to 4%. However, they do not give you the opportunity to benefit from positive market performance and often do not keep up with inflation.

In contrast, variable annuities are higher-risk, with funds tied to market performance, along with the gains and losses that come with it. Additionally, some annuities have surrender charges only, while others have administrative fees, mortality and expense risk charges and optional rider fees. The money contributed to an annuity typically can't be removed without a penalty charge.

There is no such thing as a safe stock. Investing, by definition, involves risk. Stocks offer the potential for growth, but they also are relatively risky and may experience significant losses.

Consider a diversified strategy that incorporates a mix of long-term assets, guaranteed income sources and near-term (liquid) sources if you are looking to create a portfolio that can withstand changing market conditions.

If you are looking for a type of stock that tends to be less volatile than its aggressive growth counterparts, you may want to consider dividend stocks. Dividend stocks are equity securities that represent ownership in a publicly traded company that pays dividends to its shareholders. Dividend stocks can fluctuate in value like other equity investment types, but they also provide income in the form of dividends. They also may provide investors with capital appreciation over time.

You may choose to consider fixed-income investments such as bonds, CDs and TIPS. These securities provide a regular income in the form of interest payments. They are typically less risky than other types of investments, such as stocks and commodities, making them a good choice for conservative investors.

The downside of many conservative investments is that they may not keep up with inflation over 10 or more years.

Get more tips for investing during a market downturn

Market downturns are an inevitable part of the economic cycle, but they also present potential investment opportunities. Discover tips and strategies for investing during a market correction.

Get market volatility tips

Cycles of prolonged bull and bear markets are a normal and expected part of your journey in the stock market. By having a retirement strategy that includes short-term, medium-term and long-term planning, along with reliable income sources, you’ll be prepared for both.

Working one-on-one with a Thrivent financial advisor also can help you establish the right retirement savings schedule and stay on track for a comfortable future.