The stock market’s recent volatility has many retirees worried about their investments. Some are considering selling their stocks and moving to safer options like bonds. Financial planner Daryl Diamond says staying invested through downturns is usually the right move.
“Speaking from our experience with people who stuck to their plan, it was never the wrong decision to stay invested,” he said. Diamond believes retirees are especially anxious now due to a series of compounding problems, from the 2018 market decline to the pandemic, inflation, rising rates, and the trade war. “It’s been one compounding problem after another,” he noted.
Retirees own stocks for their long-term growth potential, which helps savings last longer. But market declines are inevitable. The key is having a solid retirement plan that factors in these risks.
Such plans address how spending needs will be met by savings, benefits, and pensions.
Staying invested through market volatility
They also consider worst-case scenarios, like steep market drops.
Diamond suggests keeping a cash reserve to cover income needs during downturns, rather than selling beaten-down stocks or funds. “How much cash depends on the times and the feelings of the client,” he said. “It might be six months or it might be 18 months.
It might be 2½ years.” This provides a buffer, especially for mandatory RRIF withdrawals. While some worry this trade war will be worse than past bears, Diamond points out that the average bear market since 1957 lasted 10 months. Accounts may not fully recover that quickly, but it puts the timeline in perspective.
For those tempted to bail out of stocks, Diamond poses some tough questions: Where exactly will you put that money, and what returns will you get? Being too conservative risks not generating enough growth and running out of savings, he warned. The stock market may be hard to stomach at times, but for most retirees, it remains an essential piece of the retirement puzzle.
Image Credits: Photo by Joshua Mayo on Unsplash
