Resilience In The Face Of Market Volatility

The market’s been a bit “wobbly” in the past few days, in case you haven’t noticed.

We shouldn’t be surprised, and we shouldn’t worry.

Today, I’ve chosen to talk about market volatility, and how we should think about volatility in terms of our overall retirement plans.

As I write these words, the S&P 500 was down another 2%, on top of a 3.3% decline yesterday.

Down 5% In Two Days.  Yep, that’s volatility.

Here’s the 5-day chart:


But, It’s No Big Deal

Funny thing about markets, they’re volatile.  As Ben Carlson wrote last Friday, the market has averaged a daily drop in excess of 3% three times per year since 1928.  So, we should expect “Big Down Days” on a regular basis, even if we haven’t seen too many of them lately.  One interesting note is that 80% of those “Big Down Days” occur during a market correction or bear market.  Makes sense, but it can and does happen during Bull markets, as well.

Here’s what I posted on Twitter after the Big Down Days last week:

If you’d like to read the referenced article, click:  6 Steps To Avoid the Looming Bear Market.

I’ve no idea where things will go from here.  In all honesty, I really don’t care.  I know markets will go up, and markets will go down, and we’d be naive to assume otherwise as we plan for our retirement.  I don’t check the market daily, and I don’t worry about daily volatility.

Markets Go Up, And Markets Go Down. Make sure you prepare for volatility as part of your retirement plan. Click To Tweet

Let’s Be Real.  The CAPE ratio continues at abnormal highs, which increases the likelihood of subpar performance over the coming years.  I’m expecting it, and I’ve incorporated it into our retirement withdrawal strategy. Today, after two consecutive down days of 2%+ declines in the S&P 500, the CAPE ration remains at a level of 30.80, well above historical norms of 16.6, as shown below:

We’re being unrealistic if we expect the market to continue an uninterrupted upward trend, especially in light of today’s high valuations. Volatility is real, so make sure you incorporate it into your retirement plans.

One Day’s Decline = One Year Of Withdrawals

As I thought about the market’s move on October 10, I realized that the 3%+ move was equivalent to an entire year’s Safe Withdrawal Rate, and I sent the following Tweet:

Resilience In The Face of Market Volatility

Rather than worry about the volatility, Be Resilient.  Think about volatility before you retire, and incorporate your strategy for volatility into your retirement planning.

As part of our retirement planning, we have to be realistic to the fact that markets will face volatility.  They always have, and they always will.  It’s the way the world turns, and we’re well advised to plan accordingly.   It’s why I built my Bucket Strategy as my primary plan for Retirement Income, and it’s the reason I really don’t worry as the market ebbs and flows over any given day.  In fact, I don’t even watch the market dynamics on a day-to-day basis.

On a long-term basis, it doesn’t really matter.

I don't watch the market on a day-to-day basis. I know our Bucket Strategy will cover all but the worst Bear Market. Click To Tweet

Markets will be volatile. 

It’s the nature of The Beast.  Plan for it, and have sufficient funds to absorb a significant market downturn should it happen in the early years of your retirement.

Best to plan for the worst, and hope for the best.

The Bucket Strategy – An Infographic


For more details on our Bucket Strategy approach, read How To Build A Retirement Paycheck From Your Investments.


Make the decision that you will have Resilience In The Face of Market Volatility.  If the recent market wobbles have made you worry a bit, consider building a Bucket Strategy to calm your nerves.  Read through The Ultimate Pre-Retirement Checklist to double check your retirement plan. If nothing else, ensure that you’re keeping sufficient cash as “dry powder” to avoid selling equities in a Bear Market.  Sequence Of Return Risk is one of the biggest risks early in your retirement, and it’s a risk that you should take seriously given the volatility of the markets.

What About You?

How do you react to market volatility?  What plans have you made to minimize the risk of a Bear Market taking a bite out of your retirement plans?  Let’s chat in the comments…

“Being financially resilient means that you can weather hard times, recover quickly from difficult circumstances, and absorb the shocks that life throws your way.”
– PF Geeks



  1. I’ve learned to just not even really look or pay attention. Once I got to the point many years ago where I had my asset allocation set and things on auto-pilot, I just let it ride. I’m still young enough to not worry about it. That’s another advantage of using an index fund strategy vice individual stocks or more active investing, I don’t have to waste time dealing with this kind of stuff.

  2. Fritz:

    Love your post and really appreciate your blog.

    I completely agree. While I look at the market constantly, I do so more as a spectator and less as an active participant on a day-to-day basis. If you are a numbers geek and love the FIRE movement then I think of the daily market moves as a really fun movie to watch. 🙂

    Unless I have an opportunity to buy more when there is blood in the streets, I am simply a passive viewer.

    Your bucket strategy provides a sound structure so that you need not lose sleep as the market jumps around. I love it and plan to implement a similar strategy when we FIRE in a few years.


  3. I do look at the market every day and update values in our various accounts on the same basis. What I do not do is make decisions and changes on a daily, weekly or monthly basis. I recently made alot of changes based on my belief that we needed to be more balanced as we are in the last 10 years of earnings. 100% of what we had was in “high risk/ high reward” funds and predictably have all done very well over the last few years. I don’t have the time or the interest to make educated and informed investing decisions on a short term basis. Just try to keep it safe and as I get older, more diversified. It isn’t sexy or exciting but it works.

    1. Brian, good move to adjust your asset allocation as you get closer to retirement. Curious, why do you update values so frequently, if you’re not using the work to base any short term decisions? Sounds like a bit of work, suspect you just enjoy watching the portfolio?

      1. I started doing it with the idea that I could correlate market swings to events that were happening nationally and internationally. I make notes in a column to the side from time to time when there are notable events happening that could be effecting the market (natural disasters, retaliatory tarrifs, interest rate hikes, election results, etc.) Frankly I dont’ have the time or intelligence to really drill down and try to develop some sort of predictive model, so I guess it is more of a habit than anything.

  4. What is your rotation? Do you annually dump from Bucket 3 to 2 and 2 to 1 to replenish cash to live on?

    1. K – if you click on the Bucket Strategy link in the post, you’ll see more details. From that link:

      Several times per year (I’ll target quarter-ends) look for any asset class which has performed well, and sell portions of those investments to refill the cash in Bucket One. If (more accurately, when) we enter a major bear market, draw down the level of Bucket One for 1-2 years to allow time for your riskier assets to rebound. Alternatively, you can divert your dividend and interest earnings from Buckets Two and Three as a steady stream of cash into Bucket One. I think of the “dividend diversion” as a “Drip Refill” strategy, and plan on using that in my retirement.

  5. I try to deal with it in the same way I look at our 2 rental properties. A few times (2007 and now) the prices have skyrocketed and since homes are so difficult to sell, we never even think about it. Stock investments should be similar, but because people can click too easily, it becomes tempting.

  6. i agree with sacrificing “potential” returns by keeping plenty of cash. remember those returns really are only potential as none of us have a crystal ball to predict the future. i’ve liked the bucket strategy since i first read about it here.

    we didn’t make moves during last weeks little blip but i made light of it as a “blood bath” on the blog. as i’m writing this the nasdaq is up 2.15% today, 10-16. i read an interesting article about the shiller ratio being a little skewed due to inclusion of low earnings data from the last recession. i think we’ll all be fine.

  7. Slightly unrelated, but I’d love to read your views on the pros and cons of rental properties – I digg that you don’t rely on rental income – I don’t want to either. But are we missing out?

    1. I did AirBnB rental on our mountain cabin for ~5 years before we moved there full time. It was profitable, but more admin than I wanted to deal with in retirement. It’s a very viable plan for many, just make sure the management of the property is something that interests you. You can hire a property manager, but that’ll cut into your returns.

  8. Well, shucks – thanks to you I have a bucket strategy in place! If I didn’t, my plans to FIRE in a couple of months would have me scared to death of a market downturn.

    Instead, I’d actually rather get it out of the way and rely on my cash on-hand now so I can start my Roth conversions at lower prices. That’ll let me move more over before hitting the next tax bracket. Hmm, does that make sense? Maybe I’m now rooting for a market crash! 😉

    — Jim

    1. Funny you mention the Roth conversions, Jim. I thought of that yesterday, and realized I’m actually hoping for a maket decline sometime in 2019 so I can move more shares from Before-Tax to Roth. Amazing minds think alike, yet again!

  9. Stock market volatility is tough, but if you have a plan, then it’s easier because you just follow the plan. My plan this year is to invest $100,000 every time the S&P 500 the clients by 3 to 5% or more. So that’s what I did last week. And that’s what I’ll do again if the market drops another 3 to 5%. I don’t think the market will go down more than 15%, so that is my plan. Let’s see what happens!

    1. Sam, good plan. I did a bit of that back in ’08 (smaller tranches than you’re talking about), and I ran out of cash before it hit the bottom. “Catching A Falling Knife” is painful, but longer term it’s a good plan. It sure beats selling into a Bear, which is the “normal” human reaction.

  10. Fritz,

    Appreciate your timely post. I am walking a similar path as you, three weeks into an early retirement from a 30+ year corporate career.

    Your post on the bucket strategy has been very helpful in our thinking. My wife and I have 2-3 years of expected spending on hand in money market accounts. We have also been intentional at adjusting our risk tolerance over the past 12 months as we move into this phase of our lives.

    Keep sharing and encouraging us to join in the discussion…

  11. Based on your articles I implemented my version of a bucket plan about 6 months ago. I am 45 days from D day. All of my funds are presently in a tax advantaged 401a account. I set up 3 funds within the 401a. One is a MM at ~2% with .12 fee. It contains the cash I will need to live on for 3 years and pay off all CC and personal debt other than mortg and car. Both are at an interest rate that I lose money paying off. I have a second fund at a age target glide path fund that gets more conservative as I age out. It is at 55 stock, 35 bonds and 10 cash/MM and a .14% fee. It contains enough for at least 10 years living needs after SS and Pension. The last fund is a S&P 500 index and contains about 50% of my savings at .01% fee. Unfortunately my work did not offer anything other than pre-tax options with a match so I took the easy way out. I have ran the numbers and will see some substantial (to me) RMDs in the future but if I save a big portion of the after tax amount I should be OK.

    I am not a savvy investor so using funds helps with my decisions. Like you I am a relic of the past and have a pension coming that should cover normal needs after year 4 including medical and LTC. At least according to my NewRetirement plan, and other plans and spreadsheets I have created to validate each other. Your blog is a great service and helps with the late night sweats.

      1. Can you expand on a Roth conversion advantage over putting funds into a conventional investment account? Pay tax on money going in. Is there a difference on capital gains tax. I have been trying to research but struggling for a good answer. When I try and compare conversion vs pretax it appears that I don’t break even for 20 years and then I see a marked advantage. I do realize it is much more advantageous to heirs if there is anything left. Just looking for some high level info, not expecting financial advice. Love your blog.

        1. Ken, the Roth conversion I’m referring to is taking Before Tax 401(k) money out, paying tax as if it were all income at my marginal tax rate, and rolling it into a Roth where it will grow tax free forever. With the new, lower tax brackets (see the Loophole link above), now may be a good opportunity for me to get some of the Before Tax money rolled over.

          It’s a different analysis than “tax advantaged” vs. “conventional investment” for new funds. My reality is that I have too much money in Before Tax, and I’m worried about getting hit with large Required Minimum Distributions when I turn 70 1/2. So, I’m talking about existing balances rather than new investments. I hope that makes sense.

          1. Got it. I am in the same boat in regards to pretax savings. I am looking at a yearly partial conversion up to the max for the tax bracket I am in. The piece that I was missing was the tax free growth forever piece. If I understand correctly I lose the investment return for the amount of the taxes but then make up for it on back end through lower RMDs not taking me to a higher bracket and/or tax amounts going up as well as being forced to take distributions on amounts I don’t need. Thanks for the response.

  12. The key for me – I don’t react to market volatility. I plan for market volatility. A savvy retirement plan takes into account the bad years along with the good years. Don’t get sucked into the sensationalized headlines.

  13. We’ve been actually trying to cut cash in small doses and took the opportunity to throw some money at the market during Friday’s low. That being said, we’ll probably be pulling our trigger in 6-8 months and will want to have some cash built for the occasion. I’m really grateful to have this giant community reminding all of us to be resilient in the face of market volatility! Easier said than done after nearly a decade of raging bull market.

  14. Great post as always! My first time posting a comment! Based on the the bucket strategy, if someone wanted to have more equity exposure in their portfolio (70/30), how should they go about adjusting how much is in Buckets 1 and 2?

    1. Thanks for your first comment!! Woot woot!

      Good question on how to view the buckets in relation to asset allocation. The amount you keep in Bucket 1 and 2 is voluntary, I’d suggest you “map” your assets to the buckets and see where you’re at. You could simply keep 1 year in Bucket 1, ~2-3 years in Bucket 2, and the balance in equities. I see no reason why a 70/30 split wouldn’t work, just make sure you have enough liquidity to avoid selling into a bear.

  15. Thanks for this, Fritz. To be honest I didn’t even know the market was down. I think that’s a good sign that I don’t really pay attention nor read the news too much, eh?

    I’m just plugging along for the long haul.

    I love your bucket strategy and have adopted some of into my life.

  16. People worry far too much about trying to predict macro movements. It’s simply not worth it. Economists in the UK has predicted 9 of the last 2 recessions over the past two decades. Clearly we’re not very good at predicting and timing the markets. Better to just commit for the very long term and continue to drip feed into your investment.

    1. I have to agree, I have spent alot of time thinking on what sort of things would have to be taken into account to develop some sort of predictive model, and have come to the belief that the number of variables is too great and the effect that variables have on other variables is by it’s very nature unpredictable. As my dad says, “let it ride”.

  17. We don’t advocate for timing the market, but we had some extra cash laying around in our “emergency fund” and tossed it in the hopper last week. I’m all for adding more money at opportune moments, but we do not sell (other than to rebalance).

  18. Oh, man, I got a tremendous CMLT when I saw your classic Bucket Strategy Infographic. Great freakin’ stuff. So glad you posted it again. Mrs. Groovy and I have turned to the bucket strategy and the glide path strategy to account for sequence of returns risk and market volatility. When we started our retirement two years ago, our asset allocation was 30% equities and 70% bonds/cash. We’re now at 40% equities and 60% bonds/cash. Our game plan is to increase equities 5% a year until we reach a 60/40 allocation. Then we’ll just rebalance once a year to maintain that allocation. That should take care of sequence of returns risk. We also have two year’s worth of living expenses in cash, plus an additional $25K in cash for a new car. Lucy is closing in on 180,000 miles and she will probably be retired in the next two years. So I think Mrs. Groovy and I got this market volatility thing covered. We’ll see when the next 2009-like recession hits. Great post, my friend. Cheers.

    1. Nothing better than a leg tingle! I love your “CMLT” line, folks will have to head over to your blog to find out what it means! And yes, a repost of my infographic, figured it’s been several years since I posted that, and I have a lot of new readers since then. Plus, they take a lot of time, might as well get a bit more mileage out of that old horse, right? Happy to hear Lucy’s thinking about retirement, she’s been a good mule for you, time for her to enjoy a pasture.

  19. Fritz, not to be a Debbie Downer here, but your bucket strategy is actually a classic investment error. It’s emotionally appealing but mathematically incorrect. While I agree with your objective for risk management, the effect of substituting low volatility assets (i.e. cash and bonds) for high volatility assets is to lower the expectancy and safe withdrawal rate from your portfolio. The way you actually want to approach the problem you’re trying to solve is to figure out how to manage the risk without lowering the expectancy, which then increases your safe withdrawal rate rather than lowering it. The answer is very different from what you’re thinking and (unfortunately) beyond the scope of a blog comment. Anyway, I just wanted to alert you since I see you’re advocating this approach and betting your retirement on it. Yes, it’s emotionally appealing to not have to liquidate assets during a bear market and it sounds logical, but the math will show unequivocally that you want to approach this problem in a very different way. I hope that helps.

    1. Todd, no Debbie Downer at all. In fact, I’m honored that you took your time to leave the comment. No doubt about it, it’s “Personal” Finance for a reason, and you are (of course) technically correct. Having a higher allocation to conservative assets will likely reduce my longer term returns. However, given the seriousness of Sequence Of Return risk, and my agreement with Roger Whitney’s concept of “lowest required risk”, I’m comfortable giving up the slight bump in returns for better sleep during the market’s volatility. Also, my SWR is currently ~3% for a comfortable lifestyle, so I’m not worried about increasing my SWR in return for increased volatility. For others, your comment is one they should understand, and think through, before they design their retirement withdrawal strategy.

      Personal, right? Thanks for stopping by.

      1. Love this discussion. I see Todd’s point from a math perspective, especially for the accumulation phase. In my experience, math only gets you so far when someone is entering the distribution phase. Life outcomes typically trump optimizing potential long-term returns. In this, a safe withdrawal rate is a limited way in approaching the issue. Life is not lived that way in retirement. It’s a multi-factor problem that cannot be reliably least not reliably enough to bet your retirement on it.

        I think this is a really important discussion. Most of us enter retirement with an accumulation mindset (long-term, systematic saving, embracing risk). When we enter retirement there are major life/financial changes that I think are under-appreciated. Our horizon is not so long-term. Savings stops AND withdrawals begin. This alone is a huge financial and emotional adjustment. And the sequence of return risk skyrockets, especially in the first ten years of retirement.

        1. Fritz and Roger – I agree with both of you within the context of conventional retirement planning assumptions. Zero disagreement, as long as you limit the analysis with specific assumptions then everything stated here would be an accurate conclusion. The key point missing from this thread that was eluded to in my original comment was “The way you actually want to approach the problem you’re trying to solve is to figure out how to manage the risk without lowering the expectancy, which then increases your safe withdrawal rate rather than lowering it. The answer is very different from what you’re thinking and (unfortunately) beyond the scope of a blog comment.” Please note that I wasn’t advocating increasing risk as is implied in your comments (instead, I was advocating a different type of risk management than simply risk dilution). In fact, my comment was not operating within the conventional risk/reward limitations of the conventional asset allocation framework at all, which this comment thread is. My point is “risk dilution” (which is what’s being advocated here) is one very limited solution that has major drawbacks. There are other solutions that are game changers. As stated above, it’s too much to develop in a blog comment because it would be inappropriately long. However, I haven’t published for a long time anyway and so I’ll try and put it together and publish it in the next couple weeks as soon as I can clear my desk of some other priorities. I’ll ping both of you in this thread when it’s live.

          1. Great discussion, Todd and Roger. I’ll look forward to reading your post, Todd. I’ve been a long time follower of yours, and know you think about a lot of these issues in non-traditional ways. I’m looking forward to deeper insight into your thoughts on this one, I’ve always been one who’s willing to challenge my assumptions and consider new ways of thinking about old problems.

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