Q: My husband and I just retired and we’re worried. Our stocks are down quite a lot over the last couple months, and even our bonds have dropped lately. It feels like things could get worse. Should we be making changes?
A: What you’re feeling is totally normal. There’s definitely not a shortage of bad news. The market is coming off very lofty expectations for AI and we just started a war with Iran. So, there’s no question that watching your portfolio drop so soon after retiring adds a lot of extra stress.
But, as you know, you’re going to experience this feeling (and worse) quite often during your retirement years. Adopting a sound money mindset and the right approach for handling your money is really important. It might save you from reacting in damaging ways when things start feeling even more uncertain. And, they will someday.
It might help to take a high-level view of things. A 10% decline in stocks is called a “correction” for a reason. It sends the message that it’s kind of a routine thing. You can basically expect it to happen every few years. During a typical bear market, even a balanced portfolio can decline 10% to 15%. While I’m not dismissing your worry, what we’ve seen over the last month or two is quite mild.
To build a resilient setup, of course you need to have a balanced and diversified portfolio. That’s just classic advice. But, just as importantly, you should also know how you’d adjust your spending during a real downturn. I’m talking about looking at things like travel, eating out, making gifts and spending money on big ticket items. Just delaying some of these expenses – for even a short time – can build resilience in your plan.
It’s also really important to not lean too hard on your portfolio. For early retirees, my general rule-of-thumb is to keep your portfolio withdrawals in the ballpark of 3% to 4% per year. This alone can allow you to avoid even thinking about spending adjustments.
While nobody knows the future – and that goes for financial pros – the bigger risk to your success in retirement probably isn’t the market. It’s you. There is nothing more damaging than making big moves based on fear. Trying to sidestep downturns is pretty impossible and opens up the risk of missing market recoveries.
This brings me to my final point.
The war with Iran certainly has longer-term implications that are hard to predict. However, in the short-term, the market senses we’re only one social media post away from a market rally. We got a glimpse of it again this past week. The so-called TACO trade – the catchy acronym for Trump Always Chickens Out – is ever present.
While we definitely have some serious problems, it’s clear that some of them are self-inflicted. Thankfully, those can be solved by keeping a level head and, honestly, holding elections.
