The stock market has long been hailed as an effective wealth-building tool. Over the long term, it has historically delivered annual returns around 10 percent, or 6 to 7 percent when accounting for inflation. But the stock market is also known for volatility, which explains why some people shy away from investing in it.
As of 2022, 58 percent of U.S. households had stock holdings, according to an SEC analysis of the most recently available Federal Reserve data; Gallup reported that 62 percent of Americans owned stocks in 2025.
Steering clear of stocks may seem like an easy way to minimize portfolio risk. If you mostly invest in bonds, whose value doesn’t tend to fluctuate as wildly as stocks, you may not see such extreme dips in your portfolio. However, a “low-risk” portfolio where stocks play a minor part may be anything but.
The problem with playing it safe
Avoiding stocks could minimize your absolute losses, but it runs the risk of leaving you with a retirement savings shortfall.
“When people think about investment risk, they typically think about the stock market going down,” said Ronald Gestiehr, director of wealth management at Luttner Financial Group in Pittsburgh. “But inflation is also a risk. If your money isn’t growing enough to keep up with the rising cost of living, you’re actually losing purchasing power over time.”
Gestiehr said early- to mid-career investors should feel reasonably comfortable loading up on stocks because they may be decades away from actually needing the money.
“For someone in their 20s, 30s or 40s, time is one of their biggest advantages,” he explained. “They may have 20 to 30 years or more before retirement, giving them the opportunity to benefit from long-term market growth and compounding.”
For example, if you’d have invested $10,000 in the S&P 500 in 2006, by 2026, your portfolio would be worth around $88,000. Because of inflation, you would need $16,600 today to have as much buying power as $10,000 in 2006, which shows how far ahead you’d be with that stock portfolio, despite the market plummeting several times during that 20-year span.
Given that typical savings account rates were near-zero for the bulk of that period, the same sum of money put into a savings account would not be able to match inflation.
Minimizing stock market risk
Gestiehr said there’s no way to invest directly in stocks without risk. But there are ways to help manage it.
“Diversification is important,” he said. Investing in a broad market index like the S&P 500 allows you to gain exposure to a wide range of businesses rather than concentrating your money into a single sector or a handful of companies.
Maintaining reserves that you can access quickly is also key.
“If you have cash available for emergencies or upcoming expenses, you’re less likely to be forced to sell investments at a loss during a market downturn,” Gestiehr said.
Brandon Cox, financial adviser and founder of Coastline Complete Wealth in Bluffton, South Carolina, said the stock market has a long history of recovering from downturns, but it’s not always quick.
During the 2008-2009 recession, for example, the stock market hit rock bottom in early 2009. It took until the spring of 2013 to rebound. That’s why it’s important to distinguish between money that may be needed in the near term versus the longer term.
“We take every dollar of spending that a client will need for the next five years out of the stock market,” Cox said. “If you do that, it starts to make some people who would normally be uncomfortable with risk a little more comfortable, because you’ve got your portfolio with two different jobs at this point. One is providing the spending for the next five years, and the other is for your growth later.”
Cox’s five-year bucket strategy applies more to those who are near to retirement or have stopped working, as opposed to those who have much of their career ahead of them. But the basic premise is the same: If you only invest money you don’t expect to use for the foreseeable future, you’re less likely to be in a position where you’re selling stocks at a loss.
Control your emotions
Portfolio declines during a market dip generally become permanent financial losses only if you lock them in by selling. If you can train yourself to not react to volatility, you can ride out stock market downturns without financial pain. But if you’re naturally risk-averse, you may need outside help.
“It’s easy to say you’re comfortable taking risk when markets are going up,” Gestiehr said. “But when your account drops 15 percent or 20 percent, that’s when you really find out how comfortable you are.”
Gestiehr recommends working with a financial adviser who can help ground you when your portfolio takes a dive.
“When volatility hits, emotions can take over,” Gestiehr said. “Fear can cause people to sell at the wrong time. An adviser can help keep things in perspective and remind you why you have a particular investment strategy in place.”
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