Many of our retired clients had successful careers and are now enjoying their retirement years.  Stock market volatility is difficult to navigate for investors and even more challenging for those already retired.  The difference is time to make up account losses.  It is more difficult to ride out stock market volatility without the confidence of having additional income to make up for the losses. 

The “Trump Put”, a stock market term for a strong upward trend coined by investors after the election, continued into early 2025.  By February 19, 2025, the S&P 500 was already up for the year by 4.46% and the NASDAQ was up by 3.86%. However, the Trump Put began to diminish after February 19 with news about new tariff assessments, and by February 27 both these indices turned negative for the year. 

However, on April 2, 2025, from the White House Rose Garden, President Trump announced his new tariff schedule that was worse than any had anticipated and appeared to be an unrealistic trade war against 90 countries.  Investors ran for the exits aggressively selling their stock holdings and sending the stock market into a steep tailspin.  By April 8 the S&P 500 had plummeted -18.90% and NASDAQ sank into the “Bear Market” range dropping -23.87%.

For those in retirement, losing almost a quarter of one’s account and wiping out the previous year’s gains in just a few weeks is particularly painful to experience.  Unsure how to predict President Trump’s next moves as the media hosted analysts with dire predictions that included a worldwide recession, many investors panicked including those in retirement selling stocks to reduce further account declines. 

However, as quickly as President Trump created anxiety, weeks later he provided relief to the investment community delaying new tariff schedules.   Weeks later were additional announcements of new tariff agreements with many nations including China. Investors returned to the stock market and rallied the S&P 500 and NASDAQ and as of today’s close, these indices are back to near full recovery. 

A wild ride by any standard.  Unfortunately, those that sold stocks in April and deposited the proceeds into cash money funds, have sustained huge losses and watched the market rebound while their accounts did not. The saying, “The horse that got you there is the one that will get you out” applies many times to the stock market.  If one’s account is mostly stocks during a market selloff, it is typically the same stocks that will rally back.  If during the worst of a market decline, you switch from stocks to money market (cash), your account has no chance of recovering.  Of course, there is no assurance your stock portfolio will bounce back from a selloff, but there is no probability that funds in a money market account will.

There is a lot more to unpack in navigating and capitalizing on stock market volatility.  However, the focus of this UPdate is for those in retirement. It is particularly important to preserve your investment account values and at the same time earn a consistent net after-tax return above inflation.  It might be appealing to simply deposit your lifetime of retirement and non-retirement accounts in annuities or fixed-income accounts such as money market or Certificates of Deposits.  Unfortunately, these “safe” investments provide substandard returns that historically do not keep pace with rising prices.

So how can those during retirement ride out stock market volatility and avoid panic selling?  The key is not new investment strategies or even more diversified allocations.  During 2022, the 10-year Treasury bond market sold off worse than the S&P 500 and forced many banks into foreclosure due to their plummeting bond portfolios.  Those diversified into bonds for “safety” may have experienced more volatility than their stock holdings.

The solution is how your accounts are STRUCTURED and not how they are INVESTED.  

The success of riding out volatility is having your funds separated into conservative and growth accounts.  We recommend to our clients as they enter retirement establishing multiple accounts with funds invested in conservative accounts to provide monthly income and the balance in growth investments.  Since the duration of most stock market selloff to recovery cycles lasts from a few months up to two years, we typically maintain 3 to 12 months of required distributions in more conservative investments.  We offer five model portfolios from very conservative with a 100% guarantee of principal to aggressive growth.  The largest allocation of client accounts is invested in our Growth & Income model. 

As illustrated below, direct deposits from the Income Portfolio with sufficient funds to cover months or years of income reduce the need to draw funds from the Growth Portfolios.  The key is to have sufficient funds in the Income Portfolio to ride out the ups and downs of stock market volatility and provide the time to let growth investments recover.

As an additional backup, the Growth & Income model maintains an average of 60% growth and 40% in conservative investments.  During market selloffs, the client can receive distributions from the conservative investments, and during growth cycles the gains replenish the conservative investments within the same portfolio.

In either case, the key is not being forced to sell your growth investments due to concerns of inadequate funds to meet income distributions. 

What Does This Mean to Me?

During one’s working career, it is critical to have a financial and retirement plan prepared to determine your strategy to retire financially independent.  The plan should determine your average return required to achieve the desired account values at retirement along with investment strategies.  In most cases, your company 401k retirement plan is the most efficient and convenient way to build wealth.  However, it is important to change your investment strategy and structure as you enter retirement.  While it is critical to maintain investment returns in your growth accounts that exceed inflation net after taxes during retirement, it is also important to protect a portion of your investments from market risk.  The lesser return in conservative investments is insurance so your growth accounts can fluctuate with the market and protect against untimely liquidations.

Give us a call to schedule a time when we can discuss your plans and strategies to prepare for retirement or during your retirement.  The success of building and maintaining wealth is both an art and a science.  We welcome the opportunity to assist you and your family in achieving your financial goals.