Why pension investors should stay invested during volatile times
Pensions perform in the long term: History and financial principles strongly suggest that staying invested during turbulent times is often the best strategy, advise the experts at financial planning firm Provest. Photo: iStock
By Kieran McAuliffe, Director of Provest Private Clients Ltd.
As of March 24, 2025, the S&P 500 index has experienced a modest decline of approximately 1.9% year-to-date. The index reached a record high of 6,144 on February 19 but entered correction territory by March 13, dropping 10% to 5,521, before recovering to 5,760 on March 24. This volatility is largely attributed to uncertainties surrounding trade policies and tariff implementations.
The S&P 500 is a Stock market index tracking the stock performance of 500 leading companies listed on stock exchanges in the US.
Market volatility is an inevitable part of investing, and it can be particularly unsettling for pension investors. The sight of stock markets swinging wildly or economic news turning negative may prompt some to consider pulling out of their investments.
However, history and financial principles strongly suggest that staying invested during turbulent times is often the best strategy. This article explores the reasons pension investors should remain committed to their long-term investment plans even during periods of market instability.
Financial markets are inherently cyclical, with periods of expansion followed by contractions. Economic downturns, geopolitical tensions, inflation, interest rate hikes, and global events such as pandemics can all contribute to volatility. However, these market fluctuations are not necessarily indicative of long-term declines.
Historically, markets tend to recover from downturns and reach new highs over time. For example, the S&P 500 has experienced numerous bear markets (a decline of 20% or more) but has always rebounded, rewarding investors who remained patient. By understanding that market swings are normal and temporary, pension investors can avoid making hasty decisions that could harm their financial future.
Pension investing is fundamentally a long-term endeavour. Whether you’re decades away from retirement or only a few years out, the goal of a pension fund is to provide income throughout retirement.
Remaining invested during volatile times allows investors to benefit from the long-term growth potential of markets. Those who panic and sell during downturns may miss the market’s eventual recovery and the opportunity to buy assets at lower prices. Over time, remaining invested enables pension savers to take full advantage of compounding returns, which is crucial for building a secure retirement fund.
One of the biggest mistakes investors make during volatile periods is attempting to time the market — trying to sell before a downturn and re-enter before a recovery. While this strategy may sound appealing, it is nearly impossible to execute consistently.
Market rebounds often occur suddenly and unpredictably. Missing just a few of the best-performing days in the market can significantly reduce long-term returns. Studies show that long-term investors who stay invested through downturns generally outperform those who exit the market and try to re-enter later. The cost of missing even a handful of strong recovery days can be substantial.
For example, a study by J.P. Morgan Asset Management found that missing the 10 best days in the market over a 20-year period could cut an investor’s returns by more than half. Since these best days often occur during volatile times, staying invested is the best way to ensure participation in market rebounds.
For pension investors contributing regularly, volatile markets can actually be an advantage due to euro-cost averaging. This investment strategy involves consistently investing a fixed amount over time, regardless of market conditions.
When markets are down, your fixed contributions purchase more shares or units of an investment at lower prices. As the market recovers, the value of those shares increases, leading to better long-term returns. Instead of fearing volatility, pension investors can view it as an opportunity to accumulate assets at discounted prices.
During periods of market uncertainty, some investors may be tempted to move their pension savings into cash or low-risk assets. While this may feel safer in the short term, it carries its own risks — primarily inflation.
Inflation erodes the purchasing power of money over time. Holding large amounts of cash means that your savings may not keep pace with rising costs, reducing the real value of your pension. In contrast, historically, equities and diversified investments have provided returns that outpace inflation over the long term.
While cash can be useful for short-term liquidity needs, relying too heavily on it within a pension portfolio can jeopardize long-term financial security.
A well-diversified pension portfolio can help mitigate the risks associated with market volatility. Diversification involves spreading investments across different asset classes (such as equities, bonds, property, and alternative investments) and geographic regions.
Different assets tend to perform differently under various economic conditions. For example, when stock markets are declining, government bonds may provide stability. Similarly, investing in both domestic and international markets reduces exposure to risks that might impact a single economy.
Pension funds are typically well-diversified by design, reducing the impact of short-term market fluctuations. Instead of reacting to volatility, investors should review their asset allocation and ensure it aligns with their long-term financial goals.
Fear and anxiety are natural reactions to market declines, but emotional decision-making often leads to poor investment choices. Selling investments in response to short-term losses locks in those losses and prevents investors from benefiting from future recoveries.
A disciplined, long-term approach is essential for pension investors. Instead of reacting to market movements, investors should focus on their overall investment strategy and long-term objectives. Those who stay invested tend to be rewarded over time, while those who panic and sell often miss out on gains when the market rebounds.
History provides numerous examples of markets recovering from severe downturns:
- Global markets plummeted, but within a few years, equities recovered and reached new highs.
- Stock markets fell sharply in early 2020 but rebounded quickly, delivering strong gains for those who remained invested.
- Tech stocks collapsed, but markets eventually rebounded, and the technology sector became a dominant force in the economy.
These examples highlight the resilience of markets and the importance of staying invested during challenging times. While no one can predict the timing of recoveries, history suggests that patience and discipline pay off in the long run.
Most pension funds are managed by professional fund managers who have experience navigating volatile markets. These managers make strategic adjustments based on economic conditions, interest rates, and long-term trends.
By staying invested in a professionally managed pension plan, investors benefit from expert decision-making and risk management strategies. This reduces the burden of having to make investment decisions based on short-term market movements.
Instead of reacting to market volatility, pension investors should periodically review their investment strategy. Key considerations include:
Ensure that your portfolio aligns with your risk appetite and investment horizon.
Maintain a balanced mix of assets to reduce risk.
Stay focused on long-term objectives rather than short-term fluctuations.
Continue regular contributions to take advantage of market dips.
If market volatility is causing concern, consulting a financial advisor can provide reassurance and guidance. Professional advice can help investors make informed decisions rather than emotional ones.
Market volatility is an unavoidable part of investing, but pension investors should not be deterred by short-term market swings. By staying invested, maintaining a long-term perspective, and leveraging the power of compounding, diversification, and professional management, pension savers can position themselves for long-term financial success.
History has shown that those who remain patient and disciplined through market turbulence are often rewarded with strong long-term returns. Instead of fearing volatility, pension investors should view it as a natural part of the investment journey — one that can ultimately lead to greater financial security in retirement.
