Why the urge to act may be the biggest risk of all
March 2026 | Whalen Financial
If you have been watching the markets recently, you have probably felt it: that knot in your stomach when the numbers are moving in the wrong direction. The headlines are loud, the swings feel big, and the instinct to do something can feel almost impossible to ignore.
We understand. Volatility is uncomfortable, and it is supposed to be. But here is what decades of market history can show us: the moments that feel the scariest have not always been the moments when major changes to a long-term financial plan were warranted.
What Volatility Actually Is
The CBOE Volatility Index, commonly known as the VIX, tracks the level of uncertainty that options traders are pricing into the market over the next 30 days. A higher VIX means more expected movement. It does not tell us which direction the market will go. The VIX has historically averaged around 19 to 20. When it pushes past 30 or 40, the kinds of headlines that make people want to sell everything tend to follow.
What the Data Has Shown
A Wells Fargo Investment Institute analysis covering 1990 through 2025 found that when the VIX spiked above 40, the S&P 500 was higher one year later in the majority of those instances. TrueShares found a similar pattern: across 10 instances where the VIX surged 50% or more in a single month, forward 12-month returns exceeded the historical average in most cases, though three of those 10 did result in losses.
These are observations about specific historical periods, not predictive models. Every environment is different. With that in mind, here are a few examples:
| Event | VIX Peak | What Happened |
|---|---|---|
| 2000 Dot-Com Bust | ~45 (2001-2002) | The S&P 500 declined roughly 49% and did not return to its 2000 high until 2007, a reminder that recoveries can take years. |
| 2008 Financial Crisis | ~80 (Nov 2008) | The S&P 500 bottomed in March 2009 and entered a prolonged expansion, though the recovery took several years to fully materialize. |
| 2020 COVID Crash | ~82 (Mar 2020) | Markets fell roughly 34% in weeks and recovered within about five months, an unusually rapid rebound. |
| 2022 Inflation/Rate Fears | Mid-30s (2022) | The S&P 500 bottomed in October 2022 and rose meaningfully over the following 12 months, though the path was not a straight line. |
These examples are not intended to suggest that markets always recover quickly. But collectively, the data illustrates that elevated volatility alone has not been a reliable signal to abandon a long-term strategy.
The Real Cost of Reacting
The danger during volatile periods is rarely the volatility itself. It is the decisions people make in response to it. Many of the market's best single-day gains have historically occurred within days or weeks of its worst losses. Missing even a handful of those recovery days can meaningfully affect long-term results, and there is no reliable way to predict when they will occur.
How the Your Retirement Money Prism Helps
Staying disciplined is easier said than done when you are watching your retirement savings fluctuate. That is exactly why we developed the Your Retirement Money Prism, a planning framework recently featured in Kiplinger that separates your savings into three zones based on purpose and time horizon:
Blue Zone (short-term reserve). Roughly six months of planned withdrawals plus any near-term expenses you can see coming. These dollars live in cash, T-bills and money markets. When markets are turbulent, the Blue Zone keeps your life running without forcing you to sell anything at a loss.
Green Zone (midterm income). Covering approximately years three through 10, the Green Zone is designed to refill your Blue Zone on schedule and keep your retirement "paycheck" steady. It may include balanced funds, dividend-focused strategies, TIPS and short- to intermediate-term bonds.
Red Zone (long-term growth). Money you do not expect to touch for at least 10 years. Because your near-term needs are already addressed, Red Zone dollars have the runway to ride out volatility and let compounding work through diversified equity exposure.
This structure directly addresses one of the biggest risks retirees face: sequence of returns risk, the danger that poor early performance combined with withdrawals can permanently impair a portfolio's longevity. When your immediate spending is covered by the Blue Zone, a market decline does not have to become a personal financial crisis. No strategy eliminates risk or guarantees positive outcomes, but organizing your dollars by purpose gives you a clearer framework for making calm decisions when the world feels anything but calm.
The Bottom Line
Volatility has historically been part of the long-term investing experience. The investors who have tended to come out ahead are not those who timed it perfectly. They are the ones who stayed disciplined, structured their plan around their actual needs, and resisted the urge to let fear make their decisions.
If the recent environment has you feeling uncertain, we are here to help you evaluate whether any adjustments are appropriate given your personal circumstances.
Have Questions About Your Retirement Plan?
We offer a complimentary Retirement Money Prism Diagnostic designed to help you understand where your savings stand across all three zones and identify any gaps in your current plan.
Schedule Your Complimentary DiagnosticImportant Disclosures
This material is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Past performance is not indicative of future results, and there is no assurance that historical trends referenced in this article will continue in the future. All investments involve risk, including the potential loss of principal. The historical data referenced in this article is sourced from publicly available third-party research, including Wells Fargo Investment Institute and TrueShares, and is believed to be reliable, but Whalen Financial makes no representation as to its accuracy or completeness. The S&P 500 is an unmanaged index and cannot be invested in directly. Index returns do not reflect fees, expenses, or taxes. The VIX Index is a measure of expected market volatility and is not an investable product.
The strategies discussed (including diversification, rebalancing, and tax-loss harvesting) do not guarantee a profit or protect against loss in declining markets. Tax-loss harvesting involves certain risks, including the potential for wash sale violations. Investors should consult a qualified tax professional regarding their individual circumstances before implementing any tax-related strategy.
Whalen Financial is a registered investment advisor. Registration with the SEC does not imply a certain level of skill or training. Please consult with your financial advisor before making any investment decisions. For more information about our services and fees, please refer to our Form ADV Part 2A, available upon request or at adviserinfo.sec.gov.
