Building a Portfolio That Can Weather Market Swings
Why the Same Market Feels So Different at 35 and 65
If you watched your investments in 2022 and 2023, you saw how quickly markets can move from excitement to anxiety. One month the headlines focused on inflation at multi‑decade highs. The next month they were debating when the Federal Reserve might finally slow down interest rate hikes. Even as inflation cooled through 2024 and into 2025, it has not disappeared; the most recent Consumer Price Index data shows prices rising about 2.7% over the past year, still above the Fed’s long‑term target and a reminder that costs continue to creep higher over time (BLS CPI summary).
When you are 35, those swings can feel like noise in the background. When you are 65 and drawing from your portfolio, they feel much louder. At the same time, Americans are living longer. Social Security data shows that life expectancy at age 65 has increased from about 17.2 years in 1990 to roughly 19.5 years in 2018, which means many retirees should plan for a 20‑plus year retirement and a portfolio that must last through multiple market cycles (Social Security life expectancy analysis).
That combination of more frequent market volatility and longer retirements creates a simple but uncomfortable truth: a portfolio that works in calm markets may not be durable enough when conditions change. Building something sturdier takes more than picking the “right” funds. It takes an intentional structure that is aligned with your timeline, your spending needs, and your tolerance for uncertainty.
In this article, we will walk through how we think about building portfolios that can live with market swings instead of trying to avoid them entirely.
Volatility Is a Feature, Not a Glitch
Market volatility is often framed as a problem to be solved. In reality, it is part of how markets work. Prices move because new information arrives. Earnings surprise on the upside or downside. Interest rates change. Inflation data comes in above or below expectations. Policy shifts create winners and losers. The last few years have been full of those catalysts, from rapid rate hikes to pauses and then cuts in late 2025 as inflation moderated and growth cooled.
For long‑term investors, the key question is not whether markets will swing. They will. The question is how your portfolio behaves when they do. Does a 10% decline cause you to panic and sell? Does a sudden rally tempt you into chasing what just worked? Or can you acknowledge the discomfort, stay within a disciplined plan, and make adjustments in a measured way when the data changes?
We see volatility as the price of admission to long‑term growth. If markets delivered equity‑like returns with savings‑account stability, there would be no reward for staying invested. The goal is not to eliminate volatility. The goal is to ensure that short‑term market moves do not derail long‑term goals, especially in retirement when you may not be adding new savings.
Longer Retirements Change the Risk Conversation
Traditional retirement planning often pictured a 10 to 15 year window of life after work. Reality has shifted. Social Security projections now show that for many Americans, life expectancy at age 65 is near or above 20 additional years, depending on sex and birth cohort (SSA life tables). For couples, that means a meaningful chance that one spouse lives into their late 80s or 90s.
Longer retirements introduce two competing risks.
The first is the risk of running out of money. If your portfolio is too conservative for too long, you may preserve principal in the short run but fall behind inflation over a 25 or 30 year retirement. Even with inflation cooling to the 2 to 3 percent range recently, a 2.7% annual increase in prices would roughly double the cost of living over about 26 years (CPI trend overview). That does not require a crisis to create stress; it only requires time.
The second is the risk of suffering deep losses early in retirement and having to sell investments at depressed prices to fund your lifestyle. Those early years, when you are just starting to take withdrawals, are especially sensitive. Large portfolio declines combined with ongoing withdrawals can create a hole that is difficult to climb out of, even if markets recover.
Designing a portfolio that can handle both risks means accepting that you will need growth assets for longer than previous generations, but you will also need a thoughtful buffer between your near‑term spending and the daily swings of the stock market.
Starting Point: Clarifying Your Time Horizons
Market swings feel very different depending on which dollars you are thinking about.
Money you need in the next one to three years lives on a different timeline than money you might not touch for 15 or 20 years. If you mentally lump all of it together as “my retirement savings,” then a temporary decline in a long‑term growth bucket can feel like a threat to next year’s grocery budget. That is when panicked decisions happen.
A more resilient approach begins by separating your portfolio into time horizons.
Short‑term needs are the withdrawals you expect to make in the next few years. This is where we look for stability over return. Intermediate needs cover roughly the next five to ten years and can accept some volatility in pursuit of moderate growth. Long‑term needs are the dollars you may not spend for a decade or more, or that you intend to leave as legacy. That portion can be invested more aggressively because it has time to recover from downturns.
Nothing about that framework eliminates volatility. What it does is change your relationship to it. A 15% decline in the stock bucket still hurts emotionally, but if your next several years of withdrawals are funded from more stable assets, a bad year in the market is less likely to require a bad decision from you.
Diversification With a Purpose
Diversification is often summarized as “do not put all your eggs in one basket.” That is technically accurate, but not sufficient.
Meaningful diversification requires that you own assets that behave differently from one another when conditions change. If all your investments rise and fall together, you may have variety in your statements but not true resilience.
In practice, this often means using a mix of asset classes such as US stocks, international stocks, and various types of bonds, and then making deliberate choices within each category. Government bonds and high‑quality corporate bonds tend to react differently to changes in interest rates than lower‑quality, higher‑yield bonds. Stocks of large, established companies may respond differently to economic slowdowns than smaller, more growth‑oriented businesses. Real assets and inflation‑sensitive investments may respond differently when inflation data surprises to the upside.
Over the long term, equities have historically provided higher expected returns, which are important for keeping pace with inflation and supporting a long retirement. Fixed income has historically provided income and some ballast when growth slows or risk assets sell off. The exact mix is personal and should align with your plan, but the guiding idea is straightforward: no single economic outcome should be able to break your portfolio.
Planning for Withdrawals in an Uncertain Market
If you are still accumulating, volatility generally presents opportunity. You are buying more shares at lower prices when markets drop. The real stress test arrives when you start living on your portfolio.
Here, a clear withdrawal strategy can matter as much as the investments themselves.
One approach many retirees use informally is to “spend the income and leave the principal alone.” In a low interest rate world and a world where markets do not distribute returns in neat, predictable patterns, that has limits. Dividends and interest can fluctuate. Chasing yield can pull you into riskier bonds or narrow corners of the equity market that may not hold up well in a downturn.
Instead, we often think in terms of total return. Your portfolio combines income, capital gains, and occasional rebalancing to fund your lifestyle. During stronger market years, you may harvest more gains and replenish your short‑term bucket. During weaker years, you may lean more on the stable assets you set aside in advance.
This is where the time horizon “buckets” interact with your withdrawal plan. If you have several years of expected withdrawals held in cash or short‑duration, high‑quality bonds, you can often ride out a period of market stress without selling growth assets at the worst possible time. You may still adjust your spending, but you are choosing from a position of relative stability instead of reacting under pressure.
Cash, Bonds, and the Role of Safety
In a period when inflation is running near 2.7% annually and cash yields fluctuate with central bank policy, the old idea of parking a large share of your nest egg in a savings account may not be enough to preserve purchasing power over decades. At the same time, recent interest rate increases have reminded investors that bonds are not without risk; 2022 showed that bond prices can fall meaningfully when rates move up quickly.
So what role should “safe” assets play?
We typically see them in three roles.
First, as near‑term spending reserves. This is the cash and high‑quality, short‑term fixed income that insulates your lifestyle from the daily moves of the stock market.
Second, as stabilizers. High‑quality intermediate bonds may be more sensitive to interest rates, but they can still provide balance in many slow‑growth or risk‑off environments. Their job in a diversified portfolio is not to win in every year. It is to behave differently from stocks often enough that rebalancing between them adds resilience.
Third, as optionality. Having some dry powder during market declines gives you the option, not the obligation, to buy risk assets when they are cheaper. You are not forced to do this, but it is much easier when you are not fully invested and stretched.
The appropriate level of safety is rarely a neat formula. It is a balance between math and behavior. A portfolio that is theoretically optimal but keeps you awake at night is not actually optimal for you.
Taxes and Volatility: Quiet Levers That Matter
Market swings draw the headlines, but taxes quietly determine how much of your investment return you keep. When volatility picks up, tax management can become an even more useful tool.
For example, during market pullbacks you may be able to harvest losses in taxable accounts to offset realized gains or a portion of ordinary income, while keeping your overall investment exposure similar. In strong markets, you may decide to be more selective about realizing gains, especially late in the year when you have a clearer picture of your income.
The goal is not to let the tax tail wag the dog. Investment decisions should be driven by your plan first, then optimized for taxes where possible. That is why we often link portfolio conversations with broader planning topics like getting ready for tax season and making thoughtful year‑end decisions that support your long‑term goals. If you have not already, it may be worth reviewing how your investment accounts, retirement plans, and business interests interact when April rolls around, and how small, proactive moves can give your portfolio more room to maneuver in choppy markets.
If you would like to explore this further, our article on getting ready for tax season walks through the document and decision side of that conversation.
Behavior: The Most Important “Asset Class” You Own
We can talk about asset allocation, withdrawal strategies, and tax planning all day, but in stressful markets the most important factor is often behavior. The best‑designed portfolio can still be undermined by a poorly timed decision.
This is not about discipline for its own sake. It is about recognizing how our brains respond to uncertainty. Losses feel more painful than equivalent gains feel good. Financial news is built to grab attention, not to help you stay calm. Social media amplifies both fear and euphoria in rapid cycles.
A few practical habits can help you stay grounded when volatility spikes:
- Define your plan in writing before the next wave of volatility.
- Decide in advance what would trigger a portfolio change.
- Limit how often you check account balances during rough patches.
- Focus on progress toward goals, not short‑term performance.
- Use reviews with an advisor as scheduled check‑ins, not emergency rooms.
None of these guarantee a specific outcome. They do increase the odds that your actual behavior stays aligned with the plan you created when you were thinking clearly instead of reacting emotionally.
If you are the type who feels a burst of motivation at the start of each year and then sees it fade by spring, you may also find it useful to connect your investment behavior to a broader financial plan. We shared some thoughts on that in our piece about turning new year motivation into a real, workable plan for your money.
Bringing It All Together
Market swings are not going away. Inflation reports will continue to land each month. Interest rates will move up and down as economic conditions change. Political and geopolitical events will create new cycles of uncertainty. In that environment, the portfolios most likely to hold up are not the ones that try to predict every twist and turn. They are the ones built on a few durable ideas.
Clarify your time horizons so you know which dollars are exposed to which risks. Diversify with a purpose so your portfolio is not dependent on a single story about the future. Use safer assets strategically, not as an all‑or‑nothing choice. Coordinate your investments with your tax picture and overall plan. And perhaps most importantly, give yourself a decision‑making framework that you can live with when markets are loud.
You do not need a perfect portfolio to reach your goals. You do need one that you understand well enough to stick with when conditions are less than comfortable. That is what it means to build a portfolio that can weather market swings.
If you would like help evaluating how resilient your current portfolio is, or how it fits with the retirement you are planning for, we are here to talk. Click the button below to schedule a time to chat.
Appendix: Sources
Social Security Administration: Life Tables
