When the news flashes red with headlines about the stock market falling—or rallying—it’s easy to tune out. Maybe you’ve never bought a single share in your life. Maybe you don’t follow the S&P 500. But here’s the truth: whether stocks plunge or soar, the consequences ripple through your wallet, your job prospects, your retirement, and the entire economy.

This isn’t just about investors and hedge funds. It’s your daily finances.

Your Retirement is on the Line—Even if You Never Watch the Market

Think your money is safe in a pension or retirement account? Think again.

Most people saving for retirement are already indirectly exposed to the stock market — and this is especially true in the US. If you have a 401(k), a workplace pension, or a Stocks and Shares ISA, your savings are probably invested in a mix of equities and bonds. That means your future depends in part on how those markets perform.

When the market drops, your portfolio loses value—on paper. The good news? If you’re years away from retirement, you have time to recover. Economists argue that long-term investors can often benefit from these dips. Why? Because regular contributions during downturns buy more shares, a tactic known as dollar-cost averaging.

But if you’re close to retirement, the stakes are higher. A sharp downturn just as you begin withdrawing funds can shrink your nest egg dramatically—a problem known as “sequence of returns risk.”

Emotions Matter: Why Market Drops Feel Worse as You Age

If you own stocks, the odds are you’re a bit more emotionally involved when it comes to stock downturns. Younger investors tend to ride out market volatility with patience. But as retirement nears, the fear of permanent loss grows.

Data from the UK’s Financial Conduct Authority during the COVID-19 crash showed a telling trend: people held off on withdrawing pensions, hoping to avoid locking in losses. That instinct is wise. Selling during a downturn can turn temporary “paper losses” into real, irreversible shortfalls.

In contrast, sticking with a diversified investment strategy and pulling from cash reserves instead of selling stocks can preserve long-term financial health.

This shift in psychology has roots in both risk tolerance and life stage. The closer you are to needing your savings, the harder it is to ignore the market’s ups and downs.

Buy and Sell Stocks… or Just Pay Attention

Despite these deep ties, economists warn against assuming the market is a reflection of economic health.

The common refrain—“the stock market is not the economy”—carries real weight. Most stocks are owned by a small, wealthy slice of the population. In the U.S., for example, the richest 1% own roughly half of all stocks. But over 60% of Americans own stocks to some extent.

So when the S&P 500 hits a record high, it may say more about investor optimism or tech sector profits than the average worker’s paycheck or rent bill. But it also says something about the economy as well.

Ultimately, you don’t have to buy and sell stocks to be affected by their movements.

From your retirement savings to your job security, from your local economy to your sense of financial well-being, the market’s direction has consequences. Even if you never invest directly, understanding how the stock market works—and how economists interpret its impact—can help you make smarter decisions and feel more prepared when the next market headline breaks.

And those headlines will keep coming.

How You Can Respond—Without Panic

So what should you do when markets rise or fall? Usually, the answer is nothing. Here’s what economists and financial advisors recommend:

1. Stay the course.
If you’re saving for retirement and have years to go, don’t panic during downturns. Keep contributing, and you might benefit from lower prices.

2. Diversify.
Spreading your investments across different assets—stocks, bonds, real estate—reduces your risk.

3. Adjust as you age.
As you near retirement, consider shifting your portfolio to reduce volatility. Many workplace pensions do this automatically.

4. Have a withdrawal strategy.
In retirement, consider drawing from cash first during downturns or relying on dividends and interest to avoid selling low.

5. Think beyond the market.
Remember, market performance isn’t the only economic signal. Wages, employment, housing costs, and inflation all matter too.