Markets hate uncertainty, and the escalating conflict in Iran—now involving U.S.-Israel strikes and threats to oil shipping lanes—is delivering plenty of it. For those nearing retirement or already taking withdrawals from portfolios, moments like these can create financial anxiety and there is serious risk in letting that anxiety cause investment mistakes. We caution investors on letting a string of volatile days derail your long-term investment plan.
Markets Are Reflecting New Information & Risk
Monday was a textbook example of how confusing markets can be in real time. Stocks opened sharply lower as oil surged, only to claw their way back and finish the day essentially flat on the S&P 500, with the Dow slipping slightly and the Nasdaq even eking out a gain.
Oil and the U.S. dollar have jumped and most risk assets like stocks have gone down. The bond market had a slight decline as investors fear higher oil could mean higher inflation, which could force the Federal Reserve to raise interest rates to combat inflation. All of this is reflecting breaking news minute by minute, which is what the markets do.
Nobody Knows Nothing About Today’s Markets
The financial media is full of confident predictions about where markets go next, but as the founder of Vanguard John Bogle famously said, “nobody knows nothing” when it comes to short‑term market moves. Monday’s tape—down big, then flat by the close—is exactly the kind of randomness that trips people up when they confuse short‑term outcomes with long‑term probabilities.
Evidence shows that jumping in and out—especially around scary geopolitical events—usually leads to selling low and buying higher, which does permanent damage to retirement wealth.
The Retirement Perspective
If you’re approaching or in retirement, what matters most is not whether today is another “down 2%” day, but whether your plan and portfolio can withstand stretches of this kind of volatility. History shows that after geopolitical flare‑ups, markets often experience a period of turbulence followed by eventual recovery, even though the path can be uncomfortable.
From a retirement standpoint, the key questions are: Can you still meet your spending needs? Is your withdrawal strategy intact? Do you have enough safe assets to avoid selling stocks after a sharp drop? Those answers come from the game plan we have worked on together, specifically built to weather volatility just like this.
Level’s Strategy For Market Downturns
- Use cash from interest and dividends to cover withdrawals
- If stocks are down substantially, create any additional cash needed for withdrawals by selling short-term, high quality bonds while we wait for stocks to recover
- Harvest any losses in taxable brokerage accounts to reduce taxes
- Rebalance to take advantage of temporary stock market downturns if warranted
These strategies have been extremely successful throughout dozens of market downturns over the last forty years. There is no reason to believe they won’t continue to work going forward. As we have cautioned many times before, when markets get volatile it’s best to stick with your investment plan and talk it through with your advisor if you get nervous.
We will continue to be available for any clients who wish to talk about the recent market volatility and the plan for their portfolio going forward.
Steven Elwell, CFP®
Chief Investment Officer
