
Consistent investing for retirement is one of the most important steps toward securing financial well-being in the later years. Although the process is straightforward, it demands discipline—making regular contributions, resisting the pull of investment fads, and avoiding short-sighted decisions influenced by current events. Throughout most of one’s career, it is usually wise to allocate a significant portion of retirement savings to equities rather than bonds or fixed income holdings, as this strategy has historically lead to far greater growth over time. The key, however, is to remain invested. Missing even a few strong market days can significantly impact an individual’s total retirement savings. While varying advice from co-workers and social media groups may be well-intentioned, it is usually best to rely on sound research or advice from a trusted advisor when it comes to managing the TSP. The chart below shows what can happen to someone who tries to time the stock market and ends up missing out on just a select few days of strong returns.
- “Seven of the best ten days in the stock market have occurred within two weeks of the ten worst days in the stock market.”
- “Losses hurt more than gains feel good, and market lows can result in emotional decision making. Taking ‘control’ by selling out of the market after the worst days is likely to result in missing the best days that follow.”
- “Investing for the long term in a well-diversified portfolio can result in a better retirement outcome.”
The chart above illustrates that missing just ten of the best-performing days can reduce overall returns by more than half. If the 20 top days are missed, over two-thirds of potential growth is lost. Missing the 30 best days leaves the portfolio barely breaking even, while missing 40 results in an actual loss. This underscores the critical importance of staying invested to capture the market’s most profitable periods.
How many people truly have the discipline to stay the course when markets feel volatile and uncertain? How many were able to watch their retirement savings decline during bad years without panicking? It’s one thing to tell oneself that they can endure the ups and downs of the stock market, but it’s an entirely different experience when going through it oneself. None of us can predict what the stock market will do tomorrow, next week, or even next year. Missing just a few positive days can result in missing out on substantial long-term gains.
As retirement approaches, it’s natural to shift from equities toward bonds, fixed-income, and annuity holdings, and this can be a healthy adjustment—so long as it’s done proactively and not as a reaction to a few rough days in the market.
To gain more clarity on this topic and make sure you have a proper strategy and TSP allocation, reach out to one of our advisors at Dugan Brown for a free one-on-one consultation!
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.
Certain of the economic and market information contained herein has been obtained from published sources and/or prepared by third parties. While such sources are believed to be reliable, none of the Fund, its general partner, the investment manager or their respective affiliates, employees and representatives assumes any responsibility for the accuracy of such information.