Why a Market Pullback is Normal—And How to Stay the Course

Taken in small doses, social media video feeds can be a whimsical diversion after a long day of critical thinking. What I find fascinating are video clips of the PBS show This Old House demonstrating how knowledgeable and capable contractors use their wisdom to substantially improve old homes. As an owner of a 100+ year old home myself, these videos give me endless ideas (and hope) for improvement projects.

In watching these videos, I’m reminded that owners of well-built homes don’t panic when the rain and wind howls or snow piles up outside. They don’t need to. With a solid foundation, high-quality materials, and thoughtful construction, these homes are built to handle any storm. When the inevitability of winter rolls in, it’s not just the structure that protects you—it’s also the insulation. You may not notice it every day, but it’s quietly working to keep your environment stable, even when conditions outside are anything but.

A retirement portfolio should function the same way.

The market, like the weather, goes through seasons or cycles. Sometimes calm, sometimes stormy. With a portfolio designed to absorb shock and regulate your financial environment—through diversification, reliable income sources, and a clear plan—your financial thermostat can stay at a comfortable temperature no matter what the forecast says.

This is especially important for those nearing or in retirement: no longer relying on a paycheck, and the portfolio needs to fund the lifestyle for decades to come. No one can stop market volatility any more than you can stop a snowstorm, but we can make sure your financial “house” is well-built and insulated for the long haul.

We must remember: Each year brings its share of market headlines—some exhilarating, others unsettling. Even in years when the S&P 500 finishes strong, it’s not uncommon to see the index fall 10–15% at some point along the way. These intra-year pullbacks are frequent, unannounced, and entirely normal.

So, what does history say? And how should your portfolio be constructed not just to grow but to endure?

Since 1980, the S&P 500 has delivered an average annual return of about 13%, including dividends (according to NYU Stern School of Business historical returns data). However, in many of those years, the index experienced a double-digit decline at some point during the year. That means even during very strong years, a double-digit drop is normal.

Take 2023, for example. The market ended the year up over 20% but dipped nearly 10% mid-year. Or this year: the S&P 500 is up over 15% year to date, and it’s easy to forget the index was down over 15% as recently as April 8th, 2025. Investors who got spooked may have stepped aside at the wrong time, missing the powerful recoveries. Which belies the critical behavioral insight: reacting to short-term discomfort can jeopardize long-term success and a durable plan matters more than market predictions.

In today’s S&P 500, it’s tempting to think we should reduce exposure after a strong run—especially when valuations feel stretched and the biggest stocks make up a large percentage of the index. But even that instinct can lead us astray.

Consider December 1996: Then-Fed Chair Alan Greenspan famously warned of “irrational exuberance” in markets. Many interpreted this as a signal that the market had peaked. Yet over the next three years, the S&P 500 surged more than 80%, reaching new highs in early 2000 – over 3 years of continued growth.

Markets can stay elevated—and keep rising—for longer than anyone expects. Valuations matter over the long term, but they’re poor short-term timing tools. That’s why avoiding tactical guesses and building portfolios that are designed to perform across full market cycles with varying asset classes is the wise approach – not unlike contractors ensuring a home is rock solid.

Even with all the historical data, bear markets are inevitable. Since World War II, the average bear market has lasted about 14 months, with recovery taking about 2–3 years. Some have taken much longer. After the dot-com collapse, it took more than seven years for the S&P 500 to reach new highs. This is where families face a unique challenge: the greater wealth, the more at stake, and the harder it becomes to ignore large swings in portfolio value. Just remember, abandoning equities mid-recovery can permanently impair your plan.

That’s why diversification isn’t just a best practice, it’s a foundational discipline.

Fixed income plays a critical role here. While not a source of high growth, a properly structured fixed income portfolio provides the stability and liquidity needed to fund living expenses when markets are volatile. But how much fixed income should you have? For many families, we think it’s wise to allocate an appropriate amount of projected annual spending needs in bonds and cash equivalents.

This allows your equity portfolio the time it needs to recover—without being forced to sell during a downturn.

While many families don’t rely on a budget in the traditional sense, that doesn’t mean cash flow planning isn’t essential. Understanding annual net spending (expenses less social security, pension, etc.), especially in retirement, is critical to structuring your portfolio appropriately.

Once this baseline is established, the portfolio is allocated accordingly ensuring that near-term income needs are covered through stable investments, while long-term growth is fueled by equities and other appreciation-oriented assets.

• Short-Term Capital is designed to provide stability and generate predictable cash flow over the next 5–10 years. This includes high-quality bonds, CDs, and money market funds to cover core lifestyle costs (housing, groceries, healthcare) along with discretionary spending (travel, philanthropy, family support)
• Long-Term Growth Capital is built to outpace inflation, maintain purchasing power, and replenish the short-term bucket over time. This includes global equities, real assets, and other growth-oriented investments.
• (If possible) Legacy or “Never Spend” Capital is often set aside for heirs, philanthropic goals, or multi-generational planning. This capital can tolerate the most volatility, since the spending horizon is measured in decades.

When each portion of portfolio is aligned with its intended job, short-term volatility becomes easier to ignore because the part of your portfolio needed today is protected, and the part that’s volatile isn’t needed for many years. Theres no need to sell equities during a downturn to fund years of lifestyle expenses because those expenses are earmarked and “banked” already.

Volatility is the price paid for long-term growth. For many retirees and near-retirees, the challenge is not predicting market direction—it’s staying disciplined through all of it. That’s why a well-designed and maintained plan doesn’t rely on forecasts. It relies on structure, segmentation & matching asset classes to align with spending horizons to preserve flexibility and funding the lifestyle—no matter what the market throws your way.

Yes, the market will feel expensive at times. And yes, there will be pullbacks – but we just don’t know when. A properly built portfolio is designed to withstand those moments and keep your long-term goals on track.

Just like a well-built home, the owner doesn’t tear out the insulation every time the temperature drops. They trust it’s doing its job—quietly, in the background, providing consistency amid extreme weather. A portfolio should do the same: provide peace of mind, cover living needs, and keep you on solid footing—whether the market feels sunny or stormy.