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If the market drops, you may be understandably worried about your nest egg. And there are legitimate concerns that ongoing volatility, persistent inflation and increasing economic uncertainty could lead to a market correction.
When you’re still in the workforce, your portfolio has a longer recovery window. But when you’re near retirement or already retired, you don’t necessarily have that luxury.
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However, translating worry into panicked decision-making — like going all cash during a market correction — could derail your long-term plans.
“The biggest behavioral mistake is turning legitimate economic concerns into an all-or-nothing investment decision,” Steve McKay, Head of U.S. Retirement, Insurance and College Savings at Franklin Templeton headquartered in San Mateo, CA, told MarketWatch (1).
Here’s what to consider if you’re feeling pressured by the news into making an “all-or-nothing” investment decision.
The risks of leaving the market
Today’s retirement investors have legitimate concerns, despite the fact the S&P 500 is nearing all-time highs — thanks, in large part, to the AI investment boom.
But Morningstar (2) points to “weakness under the surface of the stock market, where tariffs, inflation, surging energy prices and higher borrowing costs have taken a toll.”
Nearly 60% of individual stocks in the index were down 20% or more from their all-time highs in August, according to Morningstar, while many “battered S&P 500 stocks have been volatile” — moving up and down over the past few months by 20% or more.
Several veteran investors, market experts and economists are also warning of a potential AI bubble burst.
So, for retirement investors, it can be tempting to look for an exit strategy — like going all cash to protect your nest egg. But leaving the market comes with risks, too.
“For a retirement investor with a 20- or 30-year horizon, purchasing-power risk and opportunity cost are risks, too,” McKay told MarketWatch.
Leaving the market could erode your purchasing power over time, making it harder to sustain your current lifestyle 10, 20 or 30 years down the road.
