5 Ways to Protect Your Retirement Portfolio Against Market Crashes in 2025

Learn 5 key strategies for building a robust retirement portfolio, including risk-management, hedging and active fund selection. Navigate market volatility and ensure long-term financial security with confidence.

As we start 2025, following a year marked by geopolitical realignments, wars, and uncertainty around inflation, interest rates, immigration and trade, the retirement investing landscape can feel daunting to investors.

Amidst this dynamic backdrop, a passive approach to retirement investing, though far from ever having been a satisfactory solution for risk-averse or inflation-sensitive investors, is looking less and less appealing. Today, retirement investing requires a more active, risk-intelligent approach to long-term income and wealth — one that is more effective at responding to the world and balancing the pursuit of healthy returns with protecting assets from large losses.

In 2025, it’s just smart investing to be paying more attention to funds that reduce exposure to large losses and avoid concentration risk which can heap potentially large losses on a retirement portfolio. The last thing any retiree wants is to watch the market drop 20-30% — as it tends to do every decade or so — and be left in a place where they must delay retirement or reduce their income if they’re already in it.

My work as a fund manager involves managing funds and managed account strategies (separately managed accounts or SMAs) that build the foundation for a happy retirement. Even in times when conditions for potentially large risk resets are rising — as they are today with elevated equity valuations in the U.S. — stability and reliability of retirement savings are possible, provided an intelligent approach is taken.

Here are five key things to consider as you evaluate the funds in which you’re investing in 2025. I hope these principles will help you avoid common pitfalls and ensure your portfolio is well-equipped for your retirement today or in the future.

1. Invest in funds that have an intelligent approach to risk-management.

To paraphrase Warren Buffet, the single most powerful way to compound return is to avoid large losses. Invest in funds that take that statement seriously and can show it.

The odds of a major stock market crash over any 10-year stretch hover around 33%, and the chance of losing real-dollar value in your stock portfolio over 30 years, even with reinvested dividends, is over 12%. For retirement investors, such long-term losses are especially crippling, eating up precious wealth-building years with little to show for it.

This is why intelligent fund management is essential, not just important, for retirement investors. One effective way to guard against loss is by investing in funds whose holdings are not too concentrated, or by investing in a variety of concentrated funds that are not correlated with each other. Both strategies can work. By holding a portfolio of uncorrelated funds, you can reduce the impact of underperformance in any one fund, as gains in other funds can help mitigate potential losses. (This can also be a good strategy from the perspective of tax-efficiency.) Hedging, on the other hand, offers protection from catastrophic downturns by employing strategies like options, which tend to gain value when the market falls.

It can take quite a bit of effort to put together an intelligent retirement portfolio that is not overly concentrated and with funds that are not too correlated. It requires some degree of technical expertise and experience as well as data on past returns and fund composition. If you work with an adviser, I suggest discussing with him/here your concerns about concentration and correlation in order to devise the best solution for you.

And remember, a fund’s performance during market downturns can be just as important — if not more — than its performance during bull markets. Building a robust portfolio of well-managed funds that can weather both ups and downs can make a significant difference in your long-term wealth. Just ask Warren Buffet.

2. Invest in funds that provide a hedge against large equity losses

As we move into 2025, trade policy and interest rate uncertainty are set to rise with the new U.S. administration. In the past this has tended to produce bouts of extreme market volatility well beyond the bounds of what most retirement experts expect. In the U.S. growth is also declining, and in Europe and China, the other two economic engines of the global economy, growth is both declining and well below average.

These factors, coupled with the increase in equity drawdown risk mentioned above, make hedging against equity risk a particularly relevant part of the risk management picture for 2025. Funds with hedging components the those offered by Markin Asset Management can provide a potential cushion for a retirement portfolio during a risk spike, small or large. Funds with hedging components include those that employ shorting, options and futures-based hedging to reduce volatility and/or downside risk. Often such funds will have the word ‘hedge’ in their name but you should consult the fund description or your adviser.

While U.S. equities, given their ability to drive strong portfolio returns, are likely to make up a significant share of most retirement portfolios, the high P/E ratios of U.S. equities today means they are also expensive, and therefore a reason why at least some of your retirement funds should be equipped with intelligent risk management and hedging at their core.

3. Retirement is getting longer, grow your wealth intelligently

One of the most notable shifts in retirement planning today is the need to account for longer retirements. Advances in health care mean retirees now often live 20-30 years beyond their working years, a reality that creates both opportunities and challenges. This extended lifespan means that individuals need significantly larger nest eggs or higher investment returns (or both!) to sustain themselves and maintain their quality of life during retirement, beyond what Social Security alone can cover.

Fueled by this knowledge of health care advancement, however, is a persistent gap between retirement expectations and reality. According to a study published in 2024 by The Wall Street Journal, while 75% of people plan to work for pay in some capacity during retirement, only 30% actually do.

As we start the new year, it’s an ideal time to reassess the funds you are invested in and whether your overall portfolios can generate sufficient returns at the right level of risk for you and your family. Rather than relying on the assumption that you’ll work well into retirement, focus on building a plan and a portfolio of funds that ensures financial security without the need to depend on that potentially overly optimistic vision. This also means accounting for the full scope of health care costs, potential lifestyle changes and the impact of inflation. A proactive and thorough approach now can help bridge the gap between what you envision for retirement and what is realistic.

4. You still need exposure to risk to drive sufficient return.

It’s important to remember that you can’t avoid risk entirely if you want to generate returns. Lengthening retirement horizons mean that relying solely on safe, low-return investments like a 3% bond fund or low volatility fund probably won’t cut it for the vast majority of families. Simply put, the math dictates that most people will run out of money if they only focus on preserving capital without generating returns.

While it's essential to manage risk, being overly conservative can stifle wealth and income. Manageable risks are necessary to achieve the healthy returns you’ll need throughout retirement. The key is to find funds or managed account strategies like those offered by Markin Asset Management that focus on mitigating the large, catastrophic risks while embracing smaller fluctuations as part of the wealth compounding process. Having a healthy allocation to equities, for example, gives you the potential for capital appreciation, even if it comes with volatility.

In that way, investing for long-term retirement income is about balance. If you can invest in funds that reduce the potential for large losses without reducing too much of the potential for gains, you position your family for long-term growth. This can enhance your retirement portfolio by not only providing a stable income stream but also continue to compound your wealth in a way that supports a long retirement.

5. Active, risk-managed funds can offset passive investing risks.

When investing for the long term, history shows that relying solely on a passive approach is quite risky. Passive investing, as its name suggests, offers investors no risk-management whatsoever. It’s passive, after all.

As a result, since 1900, there have been thirteen periods (some of them lasting for more than a decade) when the passive 60/40 portfolio (60% equities/40% bonds) cost U.S. investors a real loss of 30% or more. That means on average, slightly more than once every decade, the passive 60/40 investor lost more than 30%t of their money after inflation, i.e., in real terms. Those losses directly translate into less income for your retirement.

This is why passive investing, which simply tracks market indexes without the benefit of risk-management or hedging, exposes retirees to the unfiltered risks of the market. These drawdown periods can be especially detrimental in the later stages of life when regular income is crucial to a stable lifestyle and remaining funds are limited. Conversely, avoiding these down periods can be especially beneficial to retirement income.

In the uncertain, volatile environment we’re anticipating in 2025, active, risk-managed investing offers the potential to diversify your portfolio and increase your long-term income by helping to avoid any periods of large market losses, should they occur. All of Markin’s strategies are actively managed with a goal of reducing the exposure to large losses during times of stress.

Successfully managing an active fund or SMA requires the expertise of a skilled fund manager — and that’s where a capable financial adviser comes in. A seasoned adviser should be evaluating fund managers regularly and thus be able to guide you toward the funds with the active management and risk-management capabilities appropriate to your situation. Bringing a well-informed, active risk-management approach to your portfolio is probably one of the smartest decisions a retirement investor can make.

Bringing It All Together

Balancing growth with protection is where techniques like diversification, hedging, and active management can be very valuable. By investing in funds and strategies like we manage at Markin, that seek to reduce exposure to the largest risks — without eliminating the returns that come from taking risk— you can position your retirement portfolio for safe, long-term growth that can provide income throughout your retirement.

Looking ahead, with expected rising volatility in 2025, it's important to evaluate the funds in your portfolio. Consider those that focus not just on growing your wealth but also have the potential to shield your assets from significant losses.

About Markin Asset Management

Markin Asset Management is a diversified systematic manager that is active across hedge, total return income, equity and retirement strategies and funds. We seek to deliver outcomes that are aligned with the long-term goals of our investors. Our culture of combining quantitative and fundamental research and keenly focusing on the selection and management of risk exposures to enhance investor outcomes are distinguishing features of our firm. Markin is based in Rye, New York.

This post originally appeared on TheStreet.com.