Spoiler Alert: This post is about managing risk, not timing the market.
The worst time for a market decline: Three to five years before and three to five years after the date of retirement or paying for college, when saved funds need to be withdrawn.
True story: I retired in 2007 at the peak of the stock market. My neighbor's son started college in 2008. Both of us were highly invested in the stock market. Then the Great Financial Crisis of 08/09 happened and poof it was gone. We both managed to make it through the financial crisis, but it was stressful.
How to be ready: Put enough funds in fixed interest or money markets three to five years before retirement or paying for college to cover the amount needed for three to five years after retirement or paying for college. Therefore, survive any short term decline.
The best time for a market decline: When one still has 30-40 years before needing the funds and can wait for a recovery before using the funds.
How to be ready: Add more money during significant declines. Since 1950, the market has had 35 declines of 10% or more. In all 35 instances, the market passed the previous highs. Sometimes within a few weeks, other times a few months, and in a couple cases a few years. But the recovery happened 100% of the time.
Success is all about risk management on when the funds are needed.
This is not financial nor investment advice. Please consult a professional advisor.
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