Stock Market Concerns

In this week’s podcast I’m talking about the growing concern over volatility in the current stock market and a question that’s on the top of everyone’s mind: Is this the beginning of the end? That is the end of the bull market we’ve enjoyed for the last 12 years. Or is this simply a short term fluctuation. Well, no one knows for sure. And how the market performs is not something we as investors can control. But, one should understand what market volatility is along with another term sequence of return risk. For those new to investing, a bull market is loosely defined as a persistently sloping upward line. During a bull market, market confidence is high and investors are eager to buy stocks with the hopes that their stocks will grow in value. During a bear market, it’s quite the opposite, invest want to sell their stocks because of fear and anxiety that the market will crash.

As an investor, there’s also some tried and true things you should do and not do during a roller coaster ride in the markets. And if you’re an individual nearing retirement or just in retirement, this type of market can be disconcerting. There’s definitely some strategies and behaviors you need to consider.

In the words of Warren Buffet…

“The stock market is a device to transfer money from the impatient to the patient.”

Let’s start with a quick review of volatility and sequence of return risk…

When we witness market volatility it’s very unsettling, even for the most astute investors. Many things affect the swings of the market and some of these affects are short term blips while others can lead to longer term bear markets.

The question right now is, should we all be worried and what, if anything should we do about it? There’s a saying on Wall Street that “stocks climb a wall of worry.” Which means that investors are always worried.

Even with the effects of volatility and sequence of return risk, which I’ll talk about after volatility, the stock market has always come back and outperformed other investment options over time. The truth is that there is always something to worry about, but stock and bond markets remain resilient if you have patience and are willing to stay the course. This is the good news.

The bad news is that many investors react the wrong way to volatility and make bad, knee jerk reactions. It’s part of behavioral finance and one of the main benefits of having a financial advisor. He or she can help you stay the course in times of turbulence, which by the way is the best advice…strap in and stay the course. The market has averaged (with all its volatility), 9% rate of return since 1970, which means if you invested a dollar in 1970, you’d have close to $70 today.

Market volatility is a side effect of investing. To enjoy higher returns, you need to assume more risk. However, that risk comes with having the stomach to weather some potential large swings, and often losses, during a given time period. In fact, people are stressing about a 4, 5 and even 10% market drop during this week, but market declines of 10% or more during the year are actually quite common. In the last six years alone, we have seen four years with intra-year losses of more than 15%. And despite the ups and downs, the Russell 3000 (which is another market like the S&P 500) rewarded disciplined investors with an average annual return of over 9% since 1980. The goal isn’t to time the market. In fact, it’s impossible to time the market. Your goal should be to invest in the market, ride out the ups and downs and reap its rewards.

One financial investment company I researched stated this, “If we look at individual investors and their track record, the average equity (stock) investor trailed the S&P 500 over a 30 year period by more than 4% per year as of December 31 of 2020. Missing a 4% compounding return over decades can be devastating to your wealth. Why does it happen? The average investor thinks that they will sell before the downturn and then buy when things are better. However, reasons to worry and volatility always persist so they end up selling and getting back in at the wrong times.

Missing only a few days of returns can dramatically affect your investment outcomes. For example, from 2000 to the end of 2020, a $10,000 untouched investment would have grown to almost $43,000. Missing only the 10 best days out of almost 5,000 trading days would have cut your potential growth by more than half, and your investment would only be worth about $23,000.

Market timing sounds like a reasonable strategy, but it never works consistently to your advantage over time. Professional and individual investors alike only hurt their long-term performance when they try.”

Let’s me explain volatility a bit more…

When in retirement and withdrawing income from your portfolio, it’s imperative to reduce portfolio volatility. Recent studies have proven that when withdrawing income from a portfolio, the portfolio with lower volatility will experience a longer lifespan than one with higher volatility. A recent study completed by Sure Dividend titled Why You Must Care About Volatility in Retirement concluded that “simply put, the greater the volatility of your portfolio, the greater chance you have of outliving your money all other things being equal. By its nature, higher volatility means greater swings in the value of your portfolio.”[1]

Standard deviation is a statistical measurement that can be applied to assess a portfolio’s volatility or risk level. It is used to determine how much the returns of a portfolio will deviate from the mean or average rate of return from year to year. The higher the standard deviation number, the higher the volatility or risk in a portfolio.

The higher the standard deviation or risk, the shorter a portfolio will survive when taking withdrawals. The math proves that the portfolio with the lower standard deviation or risk will last longer when taking withdrawals for income in retirement, all other factors being equal, as shown in the following chart.


Sure Dividend Study Results


Simply put, the greater the volatility of your portfolio, the greater chance you have of outliving your money all other things being equal.”

–Sure Dividend Research Study

The Sure Dividend study assumed the following:

  • Retirement portfolio value: $1,000,000
  • Withdrawal amount: $3,333 per month or $40,000 annually (4% withdrawal rate)
  • Inflation factor: 3% increase per year
  • Rate of return: 9%
  • Retirement duration goal: 30 years (age 65–95)

The results of the study concluded that the higher the standard deviation or volatility in a portfolio, the greater chance of portfolio failure or financial ruin. As standard deviation or volatility was lowered, portfolio failure rate was decreased and a higher degree of success (or portfolio survival) was realized.

Now I’ll give you a little background on sequence of return risk…which is a risk every retiree must be aware of and plan around.

Sequence of return risk is a major risk that must be mitigated by retirees when beginning to take withdrawals from their retirement portfolio. Sequence of return risk is defined by Investopedia as, “The risk of receiving lower or negative returns early in a period when withdrawals are made from an individual’s underlying investments.” Dramatic portfolio losses early in retirement will reduce the lifespan of the portfolio. Understanding this requires a different way of thinking than when money is invested while accumulating for retirement (without any withdrawals). In the accumulation phase, the sequence of return makes no difference; at the end you wind up in the same place with the same dollar value.

While sequence of return risk cannot be controlled any more than market volatility, its effect can be mitigated. Having a safe money bucket of funds to draw income from in the event of a dramatic downturn in the stock market can be an effective strategy to protect the portfolio from negative sequence of return risk. Research studies have concluded that having this buffer to draw from when market losses occur can have a positive effect on the long-term survivability of the overall portfolio.

A major psychological benefit of the income buffer strategy is that it will enable a retiree to withstand the temptation to exit the stock market with their retirement funds during a period of market losses, which might put the retiree in a market timing guessing game. Such an approach often leads to selling at the market low and buying at the market high and dramatically underperforming a long-term buy-and-hold strategy. Numerous studies have shown that the average investor has dramatically underperformed the market returns due to irrational selling and buying decisions.

As an example, during the 2007–2009 stock market downturn, having a safe money buffer or reserve account to withdraw income from (until the stock portion of the portfolio rebounded) would have been a positive step to protect against negative sequence of return risk. As a reference, in an article dated February 2015 by Wealthfront’s Andy Rachleff and Duncan Gilchrist, PhD, the 2007–2009 market loss was 56.39% and took the market 1,485 days or 4.06 years to recover. Since 1911, the average recovery time after a stock market downturn has been 684 days or 1.87 years![2] Based on this fact, it’s prudent to have a buffer in place three to five years before retirement begins, and it should cover approximately four to five years of retirement income. A proper buffer can consist of life insurance cash values, a reverse mortgage reserve account, cash or CDs, a guaranteed annuity, or any other account that will have a limited negative effect when there is a stock market downturn.

Portfolio losses just prior to retirement or early in retirement can have a dramatic effect on portfolio survival rates and having a safe money buffer in place can have a substantial effect on reducing potential negative sequence of return risk.

Let me wrap this section of the podcast up by saying that the goal of investing is not to achieve the highest rate of return possible. It’s to achieve an appropriate level of return with the right amount of risk that will allow you to stay invested through both the good times and the bad. The level of risk that is right for you and your plan is very individual decision.

This is one reason why people approaching or in retirement invest differently. Most retirees, I would say want more stability and less risk, while still having some exposure to stocks for long-term growth.

If volatility is unsettling for your situation, keep in mind that you can make adjustments to how much risk you take. It’s not an all-or-nothing decision. It’s possible to find a portfolio strategy that protects you from too much risk and still take advantage of returns from growth. Yes, you can have your cake and eat it too. And this is where I’ll put in a plug for the Hybrid Income Portfolio…it’s definitely worth checking out if you’re concerned with the current markets and are approaching retirement or are just in retirement. Our friends over at Your Retirement Advisor created the Hybrid Income Portfolio. While I can only educate you on research backed investment information, they can explain and advise you on your specific situation and concerns. Just email me at: and I can connect you.

Benjamin Graham, British economist, professor and investor has stated this suggestion, “The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” Sage advice indeed.

To wrap this up for this episode let me leave you with a few thoughts….

During times of turmoil, the hardest thing to do is to stay the course, but this approach is critical to achieving long-term investment outcomes. There are some opportunities in times of market fluctuations. Market volatility can create opportunities through portfolio rebalancing, tax-loss harvesting, and even buying when stock valuations are low. Talk to your investment or retirement advisor about these opportunities.

Next, focus on what you can control. You can’t control interest rates, inflation, the markets, changes in tax policy, or the economy. But…you can control how you prepare for these risks and how you react when they happen. And guest what? They will happen. The best defense is a good offense that incudes a comprehensive financial plan that includes your investment strategy, retirement income strategy and a plan to make it all last as long as you do. As Sylvia Kwan, Ellevest’s Chief Investment Officer, explains: “Over the past 93 years, the stock market has gone up by an average of nearly 10 percent a year. But it didn’t go straight up!”

You’ll also want to make sure you’re diversified. Be patient and focus on the long term. As my mother always says, “This too shall pass.” According to Marketwatch: “There has literally never been a 20-year period in the past century or so that has resulted in a negative return for stocks.”

Next, try a Jedi mind trick…shift your thinking…it’s no where near a crash or significant downturn. It’s a sale. Perhaps there’s some buying opportunities. Finally, turn off and tune out the noise and prognosticators. Don’t spend all day looking at your portfolio. It’s a waste of precious time.

Finally, life always give us “stuff” to keep us up at night. Don’t let the stock market be one of them. There are ways to protect your money from downside risk and help you sleep better at night. Reach out if you want more information on this sleep insurance or any investment help, I can connect you to people that are registered and qualified to help.

Here’s to resiliency, staying the course and getting her done. Remember: worry doesn’t look good on anyone.



*Average Investor as determined by Dalbar. Source: “Quantitative Analysis of Investor Behavior (QAIB), 2021,” DALBAR, Inc.


Source: Russell 3000 Index returns from 1980 through January of 2022.


[1] “Why You Must Care About Volatility in Retirement,” Sure Dividend, October 14, 2014,

[2] “Celine Sun and Andy Rachleff, “Stock Market Corrections: Not as Scary as You Think.” Industry Insights, accessed January 11, 2017,


Check out the podcast episode here!

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