Every Investor should have their “Rules on Investing” in place for times of “market volatility and turmoil.”
Times like this, I am often reminded of the old adage:
The first rule of investing?
Don’t lose money.
And the second rule?
Don’t forget the first.
Those words, famously attributed to Warren Buffett, are echoing a little louder right now as the markets react to inflation data, interest rate decisions, and global uncertainty.
If you’ve checked your TSP balance recently and felt your stomach flip, and you might be reaching for the Dramamine, you’re not alone. But before making any sudden moves, let’s take a step back and talk about what’s happening—and what it should mean for your retirement strategy.
So… should you sell in a down market?
It’s tempting, especially when the media shouts every 0.03% drop like the sky is falling. But here’s the truth: selling in a down market locks in your losses.
No one wants to see their investments drop – especially for Feds that might be considering retiring under one of the many options benign offered right now to certain agencies (Deferred Resignation, VERA, VSIP…)
Market fluctuations are normal. Headlines, on the other hand? They’re designed to get clicks—not to guide your retirement planning.
Oh and let me let you in on a little under-discussed topic about markets and retirement planning –
The average American retiring from 2020 to now will be 18.6 years for men and 21.3 years for women (Motley Fool).
Historically, bear markets (defined as a 20% drop or more in major indices like the S&P 500) occur about once every 6 years.
Corrections (a drop of 10% or more) happen even more frequently—about once every 1 to 2 years.
So, if someone is retired for, say 25 years (let’s think longevity here!), it’s reasonable to expect:
- 4–5 corrections
- 3–4 bear markets
The key takeaway? Market downturns aren’t a surprise—they’re part of the process, which makes your plan for how you respond more important than trying to predict or avoid them.
Regardless of when you choose to retire, the odds that you will experience a bear market or correction while you are retired are pretty gosh darn high.
Money is Emotional, but should you be?
Think of it this way: if your TSP account were a house and its value dropped for a few months, would you rush to sell it? Probably not. You’d wait it out, knowing that long-term value doesn’t come from panicking— it isn’t about timing the markets it is about time IN the markets.
The same applies here. Long-term investing is a strategy, not a reaction. And for federal employees like you, your retirement plan should be designed to weather storms.
When we work with Federal EMployees, one of the conversations we habitually have is that, in our opinion, the money you need to spend (actually take out from your investments and use it to purchase goods and services) for the next five years doesn’t belong in the stock market.
Now, that doesn’t mean all your investments are in cash necessarily. It does mean that you have a solid set of rules to follow so that when times well, like NOW, arise, you’re not logging in and getting “trigger happy” and executing trades you could regret later.
Why 5 Years? This isn’t a blanket rule for everyone, but it is something that we give a lot of thought to when it comes to investing, and here is why,
In the history of U.S. stock markets, there has never been a period where the market declined for five consecutive years. The longest stretches of consecutive annual declines are:
- 1929–1932: The market declined for four straight years during the Great Depression.
- 1939–1941: A three-year consecutive decline occurred during the onset of World War II.
- 1973–1974: The market experienced back-to-back annual declines during the 1970s bear market. A Wealth of Common Sense
These instances illustrate that while multi-year downturns have occurred, a five-year consecutive decline has not been recorded in U.S. stock market history. (https://www.pbs.org/newshour/economy/feeling-queasy-about-the-stock-market-think-twice-before-selling-financial-advisers-say)
Feel like those dates are too far back in history to feel emotionally connected to? I get it. Let’s look at a more recent period:
📉 Dot-Com Bust (2000–2002)
The market did decline three years in a row, but not five:
- 2000: -9.1%
- 2001: -11.9%
- 2002: -22.1%
This is one of the very few times in history where the market was down for three consecutive years.
📉 Global Financial Crisis (2008)
2008 was a big single-year drop, but it was surrounded by positive years:
- 2006: +13.6%
- 2007: +3.5%
- 2008: -38.5%
- 2009: +23.5%
- 2010: +12.8%
Only 2008 was negative in those five years – brutal, of course – we were there, too – but we didn’t continue to spiral in that direction.
It’s Not About Timing the Markets, It’s About Time IN the Markets
Do you have a good financial plan in place so that you know what actions to take (or not take!) when market downturns happen?
It’s not IF they happen but WHEN they happen.
I know it’s really hard to keep a long-term perspective right now. It’s an emotionally charged time fueled by the access to immediate information but if you can, talk with someone about your financial plan. Make dispassionate decisions and work with an Advisor who understands your benefits.
If you don’t have someone you are trusting to get you to and through retirement, let us know. We would be happy to spend 45 minutes with you to answer any questions you have. You can learn more about scheduling a meeting with our office by clicking here.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Micah Shilanski 00:03
The markets are falling quick, sell everything or maybe not, right? One of the things that’s really important to remember, especially as we get into crazy times like we’re seeing right now, what was Warren’s Buffet first rule on investing, rule number one, don’t lose money. What was rule number two? See rule number one, don’t lose money when you’re seeing markets fall like this, sometimes there’s a misinterpretation of what this rule means. It says, oh, crud, I’m seeing all this stuff happen, there’s there’s terror fears, there’s all these things going on, therefore I gotta sell so I don’t lose and I don’t think that’s what Warren was talking about. He’s famously also says when someone you know, a reporter, said you’ve lost millions of dollars today in the market based on the activities, aren’t you worried about it? He says, I didn’t lose anything because they didn’t sell. This is the thing that we need to remember in our investment plan, is to be a rules based investor, not an emotional investor, when we get emotional, we make poor decisions. We gotta be rules based. What does that mean? Well, if we were following our rules, we should have any money we need to spend the next five years outside of the stock market. That should have already taken place with our clients, this last year, we did a whole lot of capital gains harvesting, now, pro and a con without unfortunately, right now, they got to pay taxes on that money, because the gains were taxed year after year, and what are good results, keeping you retired, keeping clients engaged for the long run, is really what we’re going for. It’s not always about beating the markets, it’s about making sure you don’t run out of money in retirement, that’s what we’re going to be focused on. So as we’re looking at things right now, I want you to think about that with everything going on, are you making emotional decisions about your TSP, are you making emotional decisions about we should buy and sell? Me personally, I’m putting more money in right now, we’ll see how this plays out in six to 12 months, but I’m not worried about six to 12 months, I’m thinking 5, 10, years down the road, even if you’re just about to retire, I’m still thinking about you 10, 20, years down the road, why? Because you’re going to be retired and have a long, healthy, enjoyable life, and I want you to have a good financial life as well, so we always gotta be thinking long term. So before we hit the panic button, before we hear all the talking heads and worry about what we should do, step back and look at your plan and say, hey, over the long term, a following the bucket approach, do I have a good financial plan? Do I have a rules based investment philosophy that I can follow over time? Make sure you’re following that stuff. Don’t get caught up in a lot of the hype that we see now, till next time, Happy Planning!