Most people don’t panic when the market wobbles a little. But when the swings get bigger, the headlines get louder, and your account balance looks like it’s experimenting with skydiving, that’s when the questions start: “Should I be doing something different?”
The truth is you don’t have to predict the future to invest wisely. But you do need a plan for what to do when risk rises. That’s what separates a thoughtful investor from someone relying on crossed fingers and good intentions.
The real danger isn’t volatility, it’s big losses. Small dips are part of life. But the deeper the fall, the steeper the climb back up. A 10% loss needs an 11% gain to recover. A 20% drop needs 25%. A 30% decline? Around 43%. And the big one, a 50% hit, requires a 100% return just to break even.
Math may not lie, but it does have a dark sense of humor.
When you’re drawing income from your portfolio, another challenge joins the party, sequence of returns risk. It’s the idea that taking withdrawals while your account is falling can dig a hole so deep that even good future returns can’t fill it back in. A tough market early in retirement has a very different impact than a tough market later.
That’s why having a plan, an actual rules-based plan, to reduce exposure when risks rise can help protect not just your portfolio but help in between your ears!
Keeps emotions from holding the steering wheel. You don’t need to guess where the market is going. You just need a way to respond when conditions start breaking down.
Helps avoid the big drawdowns. No plan eliminates risk. But stepping back during weakening conditions can help soften the blow of major declines, the kind that force investors into recovery mode instead of income mode.
Preserves lifestyle flexibility. When you're relying on your portfolio for income, a plan to avoid deep cuts can go a long way toward keeping your monthly spending steady and your stress level quiet.
Don’t wait for the headlines to tell you it’s time to act. They’re usually late to the party and tracking mud across your clean floors. A smarter approach is to have clear guidelines before the storm shows up, the financial equivalent of checking the weather radar instead of opening the window to see if your lawn chair has blown away.
The goal isn’t to jump in and out of the market like you’re chasing rabbits. And it’s definitely not about eliminating every downturn, nobody can do that. The goal is to have a thoughtful, disciplined way to adjust when the environment starts shifting.
Staying invested when conditions are strong, reducing risk when conditions weaken, and keeping your long-term plan at the center, that’s how you stay resilient through the ups, the downs, and the occasional market tantrum.
When you know what you’ll do before markets get rough, you worry less, sleep better, and stay focused on the things that actually matter.