Dot-com warning signs are back: 7 moves to protect your retirement
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Dot-com warning signs are back: 7 moves to protect your retirement
Yahia BarakahDecember 30, 2025 at 4:48 AM
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Dot-com warning signs are back: 7 moves to protect your retirement (10'000 Hours via Getty Images)
Your retirement could be sitting on shaky ground right now. The stock market is flashing warning signs that haven't appeared since the dot-com bubble burst in 2000. Stocks are expensive by almost every measure, and history shows that expensive markets tend to deliver disappointing returns.
One key warning signal is the Cyclically Adjusted Price Earnings ratio, or CAPE for short. This measures how stock prices compare to company earnings over the past decade. Right now, CAPE sits at around 40. When CAPE climbed above 35, stocks have typically delivered lackluster performance over the following year. We're well past that threshold.
But you don't need to predict a crash to protect yourself. Recognizing that expensive markets create vulnerability is enough. These seven strategies can help safeguard your retirement regardless of what 2026 brings.
Learn more: 22 states in recession or dangerously close — is yours one of them?
1. Build an emergency fund
Nothing protects your retirement portfolio during economic downturns like having cash on hand. When markets tank, retirees with sufficient emergency funds don't need to sell investments at lower prices.
Most financial experts recommend keeping three to six months of living expenses in an emergency fund. However, when you're in or approaching retirement, you may want to beef up your emergency savings by keeping 12 to 18 months of living expenses. This should help you outlast periods of market volatility or unexpected financial challenges.
Where to keep your emergency fund
High-yield savings accounts (HYSAs) and money market accounts (MMAs) work well for emergency funds since they earn competitive interest rates while keeping your money safe and accessible. Both options typically offer FDIC insurance that protects up to $250,000 of your funds at each bank.
Look for accounts with no minimum balance requirements and no monthly fees. Banks like SoFi, Barclays, and Bread Financial consistently offer some of the most competitive rates compared to traditional savings accounts, which typically pay little interest while charging monthly fees of $0
At a glance: High-yield savings vs. traditional account
Here’s an example of how much you can earn from $10,000 in a high-yield savings account versus a traditional savings account.
$10,000 in HYSA at 4.00% APY
$10,000 in traditional savings at 0.01% APY
After 1 year
$400
$1
After 3 years
$1,249
$3
After 5 years
$2,167
$5
Learn more: How to build an emergency fund on any budget
2. Diversify your investment portfolio
Diversification simply means putting your eggs in many baskets. To diversify your portfolio, you should spread your investments across different assets, including ones that typically don't move in the same direction during market ups and downs.
For example, a well-diversified retirement portfolio might include:
Asset
Allocation
Description
Stocks
30%
• Broad-market mutual funds and ETFs that hold hundreds of companies
• Provides growth potential and easy diversification
• Best for long-term wealth building
Bonds
50%
• Government and corporate bonds that pay regular interest
• Government bonds offer maximum safety
• Corporate bonds provide slightly higher returns with minimal added risk
Real estate
10%
• Real estate investment trusts (REITs) that own income-producing properties
• No need to buy actual real estate
• Pay dividends from rental income
Cash and cash equivalents
10%
• High-yield savings, money market accounts and Treasury bills
• Provides immediate access during emergencies
• Offers stability when markets decline
Keep in mind that these investment examples and allocations only serve as general illustrations — they're not a guarantee of future results. Every person's financial situation and goals differ, so the right investment mix varies from person to person.
You can easily maintain a diversified portfolio using modern robo-advisors and investment platforms that automatically handle the complex work for you. For example, SoFi Robo Advisor is an automated investment platform that has a $50 minimum and charges 0.25% annual advisory fees to automatically manage and rebalance your portfolio for you. Acorns is an investment platform that has a $3 to $12 monthly fee and offers 1% to 3% match on your IRA contributions.
Both platforms will create a personalized investment mix based on your age, goals and comfort with risk. From there, they continuously monitor and adjust your investments to maintain your target allocations and reinvest your dividends and interest.
Learn more: How I started investing with just $100 — and why you don't need to wait
3. Avoid emotional reactions during market uncertainty
Even when markets recover from temporary setbacks, the experience of watching your portfolio fluctuate can trigger emotional responses that lead to poor financial decisions. Making hasty moves based on fear can seriously damage your long-term financial security.
Here's what typically happens when you react emotionally:
Selling low. Reacting to a market crash means reacting after prices have already declined. This means you might sell your investments at a loss.
Locking in losses. When your assets decline in value, these are merely "paper losses" until you sell. By selling during a downturn, you convert theoretical losses into actual ones, permanently locking them in.
Missing the recovery. Staying on the sidelines for too long means that you’d miss on potential gains in the days or weeks following a market crash.
Buying high. You might be tempted to rejoin the market as it recovers, but this is another instance where your reaction might come after the fact, leading to buying assets at higher prices.
Instead of making dramatic moves during uncertain times, consider maintaining regular contributions to your investment portfolio. This strategy lets you buy assets at lower prices during downturns. If you need cash for daily expenses, consider dipping into your emergency fund to avoid locking in investment losses. Take the time to talk to a trusted financial advisor to alleviate your stress and receive objective guidance.
Learn more: How to use dollar-cost averaging to balance investment risks and rewards
4. Maintain steady income streams
Creating multiple streams of retirement income helps protect you when one source gets squeezed during periods of economic uncertainty and minimizes your reliance on any specific stream.
Common retirement income streams include:
Social Security benefits
Pension or 401(k) income
Annuities
Interest income from certificates of deposit
Dividend payments from stocks
Interest from bonds and bond funds
Rental property income
Part-time work or consulting
For example, you might rely on Social Security as your base income while supplementing it with regular withdrawals from your 401(k) and guaranteed interest income from CDs. During volatile economic periods, if your 401(k) fund takes a hit, your Social Security payments and CD interest income remain steady.
The key is finding the right mix of guaranteed income and flexible income sources that you can adjust based on economic conditions. During tough times, you might increase your part-time work hours or adjust your withdrawal rate from retirement accounts while relying more heavily on your guaranteed income streams.
Learn more: How much can you earn while on Social Security?
5. Optimize your Social Security strategy
With inflation continuing to pressure household budgets, maximizing your Social Security benefits becomes even more critical for long-term financial security. The timing of claiming Social Security benefits can make a difference of hundreds of dollars in your monthly benefits.
While you can start receiving benefits at age 62, waiting until your full retirement age (66 to 67, depending on your birth year) or even age 70 can significantly increase your monthly payments. Here's how waiting affects your benefits, assuming your benefits would be $2,000 at a full retirement age (FRA) of 67:
Claiming age
Percentage of full benefit
Monthly benefits
62
70%
$1,400
63
75%
$1,500
64
80%
$1,600
65
86.7%
$1,734
66
93.3%
$1,866
67 (FRA)
100%
$2,000
68
108%
$2,160
69
116%
$2,320
70
124%
$2,480
Remember that Social Security benefits receive annual cost-of-living adjustments (COLAs) to help offset inflation. The larger your base benefit, the more you'll receive from these inflation adjustments over time.
Keep in mind that while delaying benefits means larger monthly payments, you'll need other income sources to bridge the gap until you start collecting. That’s why you should consider whether you plan to continue working and what other sources of retirement income are available to you. If you're married, you'll also want to coordinate with your spouse's claiming strategy to maximize your household's total benefits throughout retirement.
Learn more: 7 steps to budget in retirement and maintain your finances on a fixed income
6. Eliminate high-interest debt
Carrying high-interest debt into retirement is like sailing through a storm with a leaky boat. Credit card balances, personal loans and other costly debts can drain your retirement savings faster than you might expect, especially during a periods of economic instability when you might need every dollar.
If you have multiple debts, prioritize them based on their impact on your finances. Credit card debt typically carries the highest rates and can quickly snowball, eating away at your retirement savings faster than lower-interest obligations like mortgages or car loans. Here's an example of the order you should follow when tackling your debts:
Credit cards — typically 15% to 25% APR
Personal loans — typically 8% to 15% APR
Car loans — typically 5% to 8% APR
Mortgage — typically 3% to 7% APR
To tackle high-interest debt effectively, start by targeting credit cards with the highest rates first while making minimum payments on other debts. This strategy, known as the debt avalanche method, helps you save the most money in interest charges over time. You might also want to look into balance transfer credit cards that offer 0% introductory APR for 12 months or longer, or consider consolidating multiple debts into a single lower-rate personal loan.
Learn more: How to pay off your credit card debt: A step-by-step game plan
7. Right-size your housing expenses
Housing often represents the largest expense in retirement, eating up 30% to 40% of many retirees' budgets. While the idea of leaving a long-time home can feel emotionally challenging, taking a careful look at your housing situation can help identify significant savings opportunities.
You’ve got several ways to reduce housing costs, each with its own benefits:
Downsizing to a smaller home or moving to a lower-cost state can significantly reduce monthly expenses while freeing up equity from your current home.
If you prefer to stay put, refinancing your mortgage when rates are favorable could lower your monthly payments.
You could also rent out a spare room or a separate living area, which can generate $500 to $ 1,500 monthly in additional income while providing companionship.
If you’re 62 or older, a reverse mortgage might be worth exploring, though it requires careful consideration. This option lets you borrow against your home equity while continuing to live there with no monthly mortgage payments. However, your loan becomes due in full once a triggering event happens — typically after you die, move out or sell your home.
Expert take: Thinking of downsizing? Here how to tap your equity to make it happen (and cut costs)
More stories in our retirement and investing series -
Best low-risk investments for retirees
5 moves you shouldn't take during economic volatility
What is a bear market? How to spot a market downturn — and sail smoothly through one
5 common investing myths: Why you don't need thousands to own stocks
7 best investment platforms: Low-cost options to put your money to work
FAQs: Investing in a downturn and protecting your savings
Learn more about how to invest during a market downturn with these common questions. And take a look at our growing library of personal finance guides that can help you save money, earn money and grow your wealth.
Where can I put retirement money during economic downturns?
If you have cash you don’t immediately need during volatile periods, you can protect its value by keeping it in relatively safe investments. High-yield savings accounts, money market accounts, and certificates of deposit (CDs) can provide stable returns without risking your principal. If you have a longer time horizon, consider regularly contributing to a diversified portfolio with a mix of stocks and bonds. Even if the market isn’t doing well during uncertain times, the assets you buy can turn in a profit as the economy recovers over time. Learn more in our guide to moves you shouldn't make during economic uncertainty.
How can I protect my 401(k) during periods of volatility?
The first step toward protecting your 401(k) during economic uncertainty is to avoid making emotional decisions based on short-term market movements. Resist the urge to sell investments when prices are low, as this can lock in losses. Instead, continue your regular contributions to your 401(k), even during a downturn, to take advantage of lower asset prices. As you approach retirement, begin shifting portions of your investments to more conservative options like bonds or stable value funds to avoid bigger losses should economic challenges hit.
Is my retirement safe from bankruptcy?
In most cases, retirement funds, pensions and even Social Security benefits are safe from being taken from creditors to repay your outstanding debt, but it depends on the accounts in question and how much you have in those accounts. Talk with a reputable attorney for legal advice or trusted retirement professional for guidance to determine whether bankruptcy is the right option for you. Learn about protecting your savings, investments and more in our comprehensive guide to bankruptcy in retirement.
What is a reverse mortgage?
A reverse mortgage is a type of loan that allows homeowners ages 62 and older to borrow against their home equity, using their home as collateral. With a reverse mortgage, you take out a loan against your home — with closing costs and interest rates — only instead of making payments to a bank or lender, the reverse mortgage pays you from your home’s equity. As long as you live in your home and can pay property taxes and homeowners insurance, the loan isn’t repaid until you sell your home, either to move or after you die. Explore how it works, who can benefit — and who should steer clear altogether — in our comprehensive guide to reverse mortgages.
Can economic volatility affect my Social Security benefits?
Not necessarily. If you’re already receiving Social Security benefits, a economic uncertainty wouldn’t have a direct impact on your monthly payments as what you receive is based on your earning history and the age at which you start claiming. However, if you aren't receiving your benefits yet and unstable economic conditions impact your earnings or employment, it could potentially lower your future benefits. Your Social Security benefits are calculated using your highest 35 years of earnings — if challenging economic periods result in years with lower or no income, it might reduce your benefits moderately when you eventually claim them.
Editorial disclaimer: Information on this page is for educational purposes and not investment advice or a recommendation to buy any specific asset or adopt any particular investment strategy. Independently research products and strategies before making any investment decision.
About the writer
Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.
Article edited by Kelly Suzan Waggoner
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