The damage that volatility can do to assets

Volatility can have a significant effect on a portfolio and is a major factor in the amount of savings available for retirement. If investors experience significant losses right before they retire, their portfolios may never recover.

Consider the time it takes to recover from a market downturn. In 2008, the S&P 500 Index lost almost 40%; it would take 13 years to recover from that loss, assuming returns of 4% per year.


It takes year to recover from a 40% market downturn


Now consider recovering from a downturn when the investor is retired and withdrawing income. This makes it much more difficult to recoup losses from a market downturn. A significant loss may be unrecoverable, leaving the investor with significantly reduced income during retirement.