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How To Not Blow Your Retirement Savings When The Markets Dip

This is a common scenario given recent stock market activity: Joe Smith, a 50-year-old executive saving for retirement, listens to the news every morning. One day, he watches the stock market take a tumble, and in a panic, quickly pulls his investments in stocks and switches to bonds - what he thinks is a safe alternative to protect his cash. A few days later, the market rebounds and the selloff Mr. Smith participated in eventually cost him a significant decrease in his retirement savings. That's because he sold too low and missed potential earnings in the rebound had he left his money where it was.

One of the common rules of investing is to buy low and sell high. When you sell during a market crash, you are essentially doing the opposite. There is no telling what the stock market will do from day to day - it may take a nosedive again or keep moving higher. In order to avoid making hasty decisions with your hard-earned retirement savings, here are some common investment rules to follow:

Rule #1: Remember, it's a long-term game. If you feel tempted to let emotions convince you to dump your investments out of panic, just repeat this mantra: This is long-term investing. The key to building wealth over time is to hold tight with a long-term investment perspective. Consider this: some individuals who stayed the course when the market bottomed out in 2009 have since seen their retirement investments nearly triple as the S&P 500 has gone up a whopping 220 percent since the recession low in March 2009.

Rule #2:

Market declines are an inevitable part of investing. The stock market is unpredictable and shifts happen. Historical data has shown that keeping your assets where they are can help outlive most market declines. Here's a recent history of ongoing market declines ranging from 1900 to December 2014 for the Dow Jones Industrial average.

% Decline

Average Occurrence

Last Occurrence

-5% or more

3x a year

December 2014

-10% or more

1x a year

October 2011

-15% or more

1x every 2 years

October 2011


When you work with a financial professional on our team, you know your money is invested where it needs to be based on your goals, risk tolerance and years until retirement. Leave your investments alone. Although it may make you cringe to watch your assets dip from time to time, corrections will happen and your savings will keep on growing.

Rule #3: Move your money only when it makes sense. Over the last 100 years, the most common market declines are just 5 percent or less. Knowing this statistic may help minimize your fears and avoid abandoning a long-term investment philosophy. There are a few occasions, however, when we may advise you to consider moving your money:

- Your asset mix is not meeting your retirement saving goal and/or timeline.

- Your risk profile has changed and you may not be able to handle as much risk today as when you first invested.

- You haven't re-balanced your portfolio in more than a year.

- You are planning to retire sooner than expected.

(As a reminder, if you visit our website and click on "Free Portfolio Risk Analysis" at the top right, it will take you to a link to our risk tolerance questionnaire. The questionnaire takes on a purely quantitative approach to understanding what risk you are comfortable taking for potential rewards using real dollar amounts).

Otherwise, if you feel your portfolio mix is on target, your level of risk is adequate and you've re-balanced once or even twice a year, then keep your money where it is.


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How To Not Blow Your Retirement Savings When The Market Dips:

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