3 Reasons Retirees Should Stay Invested In This Market  

The S&P 500 has dropped over 4% from its September high as of this writing.  Foreign markets, commodities, and commercial real estate (REITs) have dropped more with some even negative for the year.  All of this has made many investors very nervous that the decline may get worse.  Recent retirees may be even more nervous since they are just starting to live off their savings.

Many recent retirees are wondering; should I sell my stocks to prevent further declines that would jeopardize my retirement?  I believe that’s a bad idea and have compiled several reasons why. 

1.  Timing the market is incredibly difficult if not impossible.  Selling your stocks now is making a bet that the recent decline will continue.  Research by Vanguard has shown that moving in and out of the markets with the hope to avoid declines is a waste of time. You are more likely to hurt your portfolio returns than improve them. Remember, you have to be right twice to time the market successfully – both selling at the correct time and then buying back in at the right time.  Many people may have sold before the worst of the 2008 decline but missed all of the eventual recovery and the new highs that came after.

2.  The recovery tends to come quickly and last longer than the declines. The stock market can turn on a dime and with no warning.  Usually the upswing happens when all the experts agree the market will continue to decline. Missing those critical upswing periods can cost you significantly.  On top of that, bull markets are three times longer on average than bear markets.  Even if you are 65 and just retired, you still have significant time on your side to wait for a recovery.

3.  You need stocks as a portion of your portfolio to keep up with inflation and make sure you don’t run out of money in old age.  Few of us have enough saved to live off our principal alone throughout retirement.  Most will need growth to keep up with rising costs and to ensure we don’t run out of money if we live to 100.  While bonds can be an important diversifier and stabilizer in a portfolio, rates are very low today and may not provide the protection retirees need.  Having a portion of your money in the stock market is an excellent way to protect yourself from inflation and to help ensure your money lasts as long as you do.

It may be difficult to watch as the market fluctuates but temporary declines are a normal part of investing.  The stock market pays us a risk premium to deal with these declines and staying invested is the best way to make sure you earn the return you deserve for bearing the risk.