fizkes / iStock.com
When it comes to the stock market, there are no guarantees. If you’ve invested in the stock market as part of your retirement planning strategy, it’s good to be prepared. This means knowing the signs of a potential market downturn (insofar as such things can be predicted) and finding other ways to protect your portfolio.
Sure, the stock market has, according to the Official Data Foundation, had an average annual return of 10.56% over the past 70 years (in reality, it’s 6.71% adjusted for inflation). But it’s also seen its share of volatility that, for individual investors, has led to some substantial gains — and losses. The times you enter and exit, as well as how many market-adjustment events you endure, have a huge bearing on your success.
Signs of a Market Crash
To be clear, there’s no surefire way to predict an upcoming market downturn. That’s because there aren’t any definitive indicators.
But according to Brian Finkelstein, Chairman and financial expert at Broad Financial, some economic conditions may lead to increased volatility. These include:
-
Consistently high inflation: The annual inflation rate over the past 12 months was 2.8% compared to the Fed’s target rate of 2%.
-
Rising interest rates: The federal funds rate is the Fed’s target interest rate. It impacts interest rates across the board. As of January 2026, the effective federal funds rate is 3.64%. Rates tend to fluctuate, but they’ve been on a slight downward trend over the past 12 months.
-
Geopolitical ambiguity: Geopolitical risks can affect everything from inflation and financial markets to supply chains and global economic outlook. As per S&P Global, one such example from last year is relations between the U.S. and China (think: new tariffs on imports).
“In tandem, these circumstances tend to bring a period marked by extended market concentration,” said Finkelstein. “This often translates to potential risk for Wall Street products.
Along with this, there are some signs of market fragility and elevated risk for investors.
“Stock market valuations have sustained much higher valuations than the historical average. This does not mean a crash is imminent. Indeed, the market can survive many years in a state of overvaluation,” said Asher Rogovy, Chief Investment Officer at Magnifina, LLC. “Rather, today’s valuation highlights the risk of a downturn.”
So what does this mean for your retirement funds?
“An overvalued market has much further to fall before finding support,” said Rogovy. “If the market doesn’t decline to a fairly level, there is another way out: inflation. Eventually, the market’s valuation will better reflect the numbers underlying business conditions, one way or another.”
Learn More: I Asked ChatGPT What Would Happen If Billionaires Paid Taxes at the Same Rate as the Middle Class
Read Next: 9 Low-Effort Ways To Make Passive Income (You Can Start This Week)
Ways a Market Downturn Can Affect Your Retirement Portfolio
One of the biggest ways a market downturn can quietly diminish your retirement portfolio? Inflation.
Advertisement
As per the Department of Labor, inflation can seriously affect retirement savings by reducing your real income. This makes it harder to save consistently, unless your real income and investments account for inflation. If your investments (specifically your retirement accounts like IRAs and 401(k) plans) do account for inflation, gains are more possible.
Of course, inflation’s impact on your nest egg varies by the types of asset classes you’ve invested in.
Take commodities and real estate investments for example. These may offer some level of protection against the loss of purchasing power. But if you have larger holdings in these areas, you may experience additional risks (specifically during low-inflation periods).
Inflation affects fixed-rate securities like treasuries, CDs, mutual funds and corporate/municipal bonds differently. If you’ve invested much of your nest egg in these areas, there’s much less stability in the event of a market downturn or crash.
Protecting Your Retirement Portfolio During a Downturn
So, what can you do to protect your nest egg from a potential downturn? One option is to diversify.
“Diversifying your nest egg through alternative assets and private investments can help establish a balance across your retirement portfolio,” said Finkelstein. “Generally, alternative investments such as real estate, private equity, cryptocurrency and private lending are not as impacted by the twists and turns of the market.”
You may also benefit from monitoring your investments and making changes to allocation based on risk and market volatility. Before doing this, it’s generally wise to speak with your financial advisor.
And if you’re a passive index investor, you can’t usually avoid a downturn. That’s why your best bet is generally to hold through periods of volatility and downturns. But as Rogovy pointed out, this isn’t always an option for retirees or those who need short-term liquidity.
In that case, your options are:
-
To try to time the market (notoriously difficult)
-
Choose more resilient holdings
“Successfully timing the market is extremely difficult even for professionals and I never recommend clients to attempt this themselves,” said Rogovy. “The other option is to select investments thoughtfully and with an eye on their fundamentals and valuation. A portfolio of 20-30 quality stocks can outperform indices whether the market is going up or down.”
Again, a financial or investment advisor can help you determine the best way to set up your portfolio.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Retirement 2026: How Market Crash Warnings Can Quietly Destroy Your Nest Egg