Staying Invested in a Down Market

Market volatility is an inevitable part of investing, but for retirees and those approaching retirement, it can trigger significant anxiety. At Cyr Financial Wealth Advisors, we frequently address client concerns about market downturns, providing guidance that has remained consistent since our earliest documentation in 2013. This blog post explores the definitive answer to the question: “The market is crashing—what should I do?”

First, it’s essential to understand that the stock market historically generates significant returns over extended periods. On average, investments grow approximately 10x over a 20-year timeline. However, this impressive growth comes with periods of volatility that can test even the most disciplined investor’s resolve. When markets decline, many investors feel an overwhelming urge to sell their holdings to prevent further losses—a reaction driven by emotion rather than strategy. This instinctive response to seek safety often proves counterproductive to long-term financial success.

Research from Fidelity Investments dramatically illustrates this point. An investor who missed just the five best market days since 1988 would have sacrificed substantial long-term gains. More specifically, a $10,000 investment that captured those critical five days would have grown to over $500,000, compared to approximately $330,000 for those who missed them. The discrepancy becomes even more pronounced when examining the impact of missing the ten best trading days over a 20-year period: an initial $100,000 investment would yield $723,000 if fully invested throughout, but only $326,819 if those ten crucial days were missed. This data underscores a fundamental truth: attempting to time the market by selling during downturns and buying during upswings is virtually impossible and frequently detrimental to long-term performance.

For retirees specifically, proper portfolio construction provides the most effective bulwark against market volatility. The “danger zone”—the five years before and after retirement—represents a period when conservative allocation is particularly crucial. At Sear Financial, we implement a strategic approach that typically allocates only 30-60% of a retiree’s portfolio to stocks, with the remainder divided between bonds and “mailbox money” (guaranteed income sources). This structure ensures that essential income needs are met through stable sources like social security and mailbox money, which typically constitute 15-25% of a portfolio, while bonds provide additional income until social security begins. This design means retirees rarely need to withdraw from stock investments during market downturns, allowing those assets time to recover.

When markets decline, properly structured retirement portfolios experience four crucial dynamics: first, long-term income predominantly derives from mailbox money and social security rather than stocks; second, any additional distributions come primarily from bonds, not depressed equities; third, bonds often increase in value when stocks decline, providing a counterbalancing effect; and fourth, historical evidence consistently demonstrates that stock markets eventually recover. These four principles form the cornerstone of weathering market volatility without compromising long-term retirement security. The six fundamental rules of investing—choosing optimal investments, minimizing fees, reducing tax burdens, removing emotion from decision-making, ignoring self-proclaimed market gurus, and maintaining proper diversification—provide additional guardrails against impulsive decisions during turbulent markets.

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