Market sell-off: What investors, pension savers and retirees should consider

It’s important to keep your cool when stock markets fall. What we’re seeing now is unpleasant, but it isn’t out of the ordinary. History shows that markets go through cycles and what’s unfolding in front of our eyes is par for the course.

Markets last experienced a big pullback in April 2025 when Donald Trump effectively announced a trade war with his tariff-laden Liberation Day. Before that, it was a surge in inflation and interest rates, and the global pandemic that knocked share prices for six. On all these occasions, and many before that, markets eventually bounced back.

What to do during a sell-off

There is always uncertainty as to when a rebound will happen, but history suggests that staying in the market is normally a sensible course to take. Market rebounds can happen quickly and those sitting on the sidelines often miss the best days during the bounce back.

Market volatility, when share prices move sharply up and down, can create opportunities. It can allow investors to buy investments more cheaply when others are panicking and sell at higher prices when optimism takes over.

The key is to avoid becoming a forced seller. If you have enough cash to meet near-term needs, you are less likely to have to sell investments after markets have fallen sharply and crystallise losses.

A falling price doesn’t necessarily mean the investment case has changed. If the fundamentals remain strong, a sell-off could even create an opportunity. But if the company’s prospects have worsened, it may be time to reassess. 

Ensuring your portfolio is well diversified in terms of asset class, geography and sector can help reduce the impact of market swings.

What should you do with your pension?

It is primarily people with ‘defined contribution’ (DC) pensions invested in the stock market who will see a direct hit to the value of their pension when markets fall sharply. Members of ‘defined benefit’ (DB) schemes are largely shielded from market swings, provided the employer backing their pension promise remains in business.

For younger DC savers who aren’t planning to access their retirement pot for decades, the events we’re currently witnessing shouldn’t knock off course a retirement plan.

If you are approaching retirement, the key is to review your investments to make sure they are still aligned with how you plan to take an income from your pot. Provided this is the case and you remain comfortable with the make-up of your portfolio, there should be no need to panic or fundamentally shift approach.

If you’re in your pension’s default fund, you may have been automatically moved into lower-risk investments as you approach retirement without actively choosing to do so. You may have derisked without knowing it.

This is because many workplace pension default strategies use lifestyling or a target-date approach, gradually reducing exposure to shares and increasing exposure to assets such as bonds and cash as retirement gets closer.

What to do if you are retired

If you are taking a flexible retirement income through drawdown, use periods of market volatility to check you are still comfortable with the level of investment risk you are taking. If you are, and your plans remain on track, there may be no need to change course.

If a short-term market fall completely knocks your retirement plans off course, that could be a sign you are taking more investment risk than is appropriate for your circumstances or that your withdrawal plans need reviewing.

Try to avoid knee-jerk reactions to falling markets, as selling investments after they have dropped can lock in losses. However, sustained falls are particularly important for people in the early years of drawdown, because continuing to withdraw money from a falling portfolio can make it harder for the fund to recover. You may therefore need to review how much you are taking out and where those withdrawals are coming from.