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No one wants to see a rollback. But we all know it occasionally happens.
As of February 20, 2026, the all-time high for the Vanguard S&P 500 ETF (VOO) is about $642.
If we experienced a decline from that level:
That’s how markets work. A severe headline event often rewinds prices months — sometimes a year or two — but rarely decades.
In real time, a 30% decline feels like collapse. On a chart, it’s a return to where we once stood not long ago — a time that probably didn’t feel catastrophic at all.
So here’s the question:
How do you feel about rolling back a few months? A year? Two years?
For long-term investors, volatility is not destruction. It’s a reset. A rewind before the story resumes.
No one wants to see it happen. But if we know what a 20%, 30%, or even 40% drop truly represents — a return to recent history — it becomes less of a mystery and more of a normal, if uncomfortable, part of the journey.
I wouldn’t be crazy about a big fallback, but it’s why I rebalance periodically according to my IPS. Pruning my gains helps reduce impacts from a correction when it happens, though it also mutes potential gains should markets continue to run up. I subscribe to the thought that “pigs get fat, but hogs get slaughtered”…
As a retiree, I feel ok about an extended market correction/recession. I maintain 24-30 months cash and have a portfolio with appropriate fixed income and equity investments. The income from the investments should be able to refill cash positions for an extended period so I won’t have to sell stock or bond positions for losses.
For those still working, increasing your emergency fund and discussing defensive moves with your advisor would be appropriate. Broadening taxable brokerage accounts to less tech and more index/value/international holdings may be appropriate. Exchanging stocks for bonds doesn’t make much sense based on holding bonds in a taxable account isn’t tax efficient. Munis performance generally isn’t great but may provide a temporary buffer. Having said all that, I was 100% equities until retirement and, with a little luck, did ok. It’s time in the market, not timing the market that produces the best long-term results.
How do you feel about rolling back a few months? A year? Two years?
I didn’t sweat the lost decade, 2000-2009. At the time, we were shifting our savings into high gear, so benefited from the debacles . Now fully retired, and thanks to articles like this one, as well as the great comments, we have a new strategy in place for the inevitable hard markets.
I’m reminded of COVID when the Dow went from like 25K to 17K. I heard people talking about now was the time to invest. What, you suddenly have that much cash sitting around now, but you didn’t have it when the Dow went through 17K the first time maybe a couple of years ago?
I’m retired and began taking withdrawals from my retirement accounts in 2018. To prepare for that I gradually increased my cash/fixed income. It was a difficult decision because money market and CDs, etc. had been paying less than 2% for a number of years. The yield reached a less than stellar 2.31% in 2018.
Add that in 2018 the S&P 500 had a loss of 4.38%. By 2021 I completed reallocating and had reduced the growth component of my stock portfolio. It was tempting to continue to ride the boom in growth stocks. Managing greed can be an issue. However, wealth defense was more important to me than gains.
Today, my portfolio can accommodate a long-term downturn of 10 years or more, including another bond fund decline. My spouse is younger, but is also prepared. She has significant bonds and cash because she’ll be taking RMDs in a few years. My investment approach remains healthy. My stock style is 32% growth, hers is 22%. We both have a healthy ex-U.S. stock component as well as value and core stock holdings.
My perspective is not if a serious correction will occur, but when. I view this as inevitable. Of course, I’d prefer this didn’t happen, if for no other reason than the turmoil that will be the result. In 2008 I knew individuals including retirees and near retirees who experienced significant financial and emotional pain during that long reset. It will happen again.
Add the possible adjustments to social security retirement benefits in 2033. It is possible the politicians will punt, make up the payroll tax short-fall by drawing from general revenue and the Fed will simply print money. It will really get interesting then, as this ripples through the entire economy.
Great topic. Personally, what helps me is remembering that even a 40 percent drop just takes us back a couple of calendar pages, not to financial zero. If I can mentally treat that rewind as the market putting quality assets on sale, it feels less like a threat and more like an opportunity. As a fellow long-term investor, these resets are the price of admission for the potential returns we are all hoping to earn.
If there were a 40% drop in the S&P, I’d definitely be a buyer. Good stocks are seldom on sale, get them while you can.
We can eagerly look forward a 66.67% gain in the future as the market gradually recovers and climbs the wall of worry. But, we all listened to Bill Bernstein and established some sort of guaranteed income buffer to weather the inevitable storm yes?
It’s also a great opportunity to remind your family members, especially the younger ones, about the risks and rewards of investing in stocks since many haven’t even experienced a bear market and got educated by influencers on social media!
I stopped counting the number of time I get asked about crypto! I begin with, “let’s talk about standard deviation” 🙂
Such a drop is a good time to move assets from your traditional IRA to your Roth IRA. You can move more shares for the same amount of money. Let the assets grow in the Roth afterward.
This presumes you have cash that can pay the tax liabilities for the conversion yes? Otherwise, you are market timing assuming the market will bounce back by the time taxes are due.
The question for me is not just how steep the drop but, more importantly, how long it lasts. In my mind there is a difference between volatility and a prolonged downturn. I was past mid-career in 2008 when my retirement accounts took a 50% + hit and it took until 2013 for a full recover even with dollar cost averaged bi-weekly contributions. In hindsight, I benefitted from that very scary time because I still was working and contributing. But lots of folks had to unretire. We plan for a 10-year downturn so basically have an 11-year floor of fixed income. That addresses the concern for us.
That’s pretty smart Rob.
Yes, very smart, and I hope you considered inflation in your planning?
Advisors typically say 3-5 years of spending needs should be sheltered from the volatility of the stock market. But, from March 2000 (tech bubble burst) to March 2010, the S&P returned an annualized return of ~ negative 2.5% per year. Our minds cannot accept it but it happened!
Bill Bernstein’s thesis of building a decade+ liability matching portfolio appeals to me.
Market pullbacks are why dollar cost averaging is often recommended over all in at once.
FYI: Let’s say you are sitting on 50K that you need to invest. My research says it is slightly better to put it all in at once rather than dollar cost average (DCA). But DCA from your paycheck is a different story.
Everyone should have, at minimum, 3 to 5 years of retirement spending held in safe assets, so a large market decline shouldn’t be a problem. Combine that with rebalancing back to your target allocation, and a downturn actually deepens the security of your financial foundation going forward.
Mark,
Succinct, smart advice once again. 👍🏻
Hey Bill,
This article is interesting in that when there is a significant drop in the market such as in 2020, and 2022 the first thing I do is look at my Vanguard account to see how far my BALANCE, not the market, has slipped backwards chronologically, and have found something similar which calms my nerves.
More recently when I hear such a question as what would you do if the market dropped 40% my immediate reaction is that if my bonds (45% of my portfolio) and cash (10%) are not affected my loss would be less than half of the market decline so I will sleep well, that is after I rebalance to my target allocation (thus buying stocks on sale) and wait for them to rebound.
You did good thinking on this. The purpose of most of my submissions is to encourage people to think out of the box. It seems you are already an out of the box thinker.
My wife says I don’t think like normal people!
Different context, Dave🤣