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In tough markets, patience may yield rewards

Key takeaways

  • In tough markets, it's easy to fall prey to your fears and end up making an emotional decision about your money.
  • When markets fall, it's common to want to get your money out or switch to a more conservative allocation, but these moves may be counterproductive.
  • There are a few steps you can take to help prepare yourself for volatility and reduce the likelihood that you make a misstep and deviate from your plan.

When markets are roiled by uncertainty, it isn't always easy to stay focused amid the turmoil. Given that you can't anticipate whether markets will rise or fall in the future, your best bet is to develop a plan that’s designed to reach your long-term goals and, perhaps most importantly, gives you the confidence to stick with it. "Diversification is important, especially in an environment like this where there are lots of potential outcomes," says Scott McAdam, institutional portfolio manager with Strategic Advisers, LLC. "In the face of uncertainty, all we can do is try our best to be prepared."

Resisting the common bear market myths

Let’s consider an educational example that follows a theoretical retired couple who started taking withdrawals from their portfolio in 2008, when the financial markets experienced a steep drawdown, and charts their journey through to the present day. Although past performance doesn’t guarantee future results, it can be helpful to see how such a scenario might have played out.

It’s 2007 and Jordan and Shawna are planning to enter retirement in 2008. In preparation, they meet with their advisor to consider their options. First and foremost, they are seeking income that could help them achieve the lifestyle they desire in their golden years. But they also want to maintain a healthy, long-term base of assets that has the potential to grow over time and could help them address any unforeseen expenses or emergencies that might arise during their retirement.

After talking it over with their advisor, Jordan and Shawna decided to invest $1 million in a diversified, professionally managed account. "When devising a plan for a client, we start by evaluating their needs," says McAdam. "We want to know what their goal is and what it is they’re saving for, so we can better understand their tolerance for risk. When we can determine how much money they might need to achieve that goal, that helps us design a portfolio that’s equipped to help them reach it." Based on Jordan and Shawna’s expected needs, the couple determined that they would need to withdraw $40,000 in the first year of retirement to fund their lifestyle and planned to increase their withdrawal amount by 2% each year, to account for inflation.

Since hindsight is 20/20, you’ve probably already guessed what happens next. Jordan and Shawna’s million-dollar investment runs headfirst into the 2008 financial crisis. In the very first year of their retirement, Jordan and Shawna watched their portfolio—their hard-earned savings—lose more than 30% of its value. And after withdrawing the $40,000 to pay their day-to-day expenses, they were left with about $650,000 and a feeling of unease about what the future might hold for them and their portfolio.

In a situation like this, it’s easy to fall prey to your fears and end up making an emotional decision about your money. There are at least 3 common responses to this kind of difficult financial environment that, while entirely understandable, are in fact myths that could lead you to make a serious, potentially life-changing error.

"When you see a big drop in your savings on your account statement, it’s likely that you’re going to have a visceral reaction," says McAdam. "But that’s when you need to buckle down and try to stay focused on long-term goals rather than short-term volatility."

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Myth #1: It’s time to get out

Watching more than 30% of your savings evaporate into thin air isn’t easy and given how shaky financial markets seemed back during the 2008 crisis, you couldn’t blame Jordan and Shawna for thinking that maybe they’d be better off pulling their money out of the market and waiting for things to settle down.

But again, with the benefit of hindsight, we can see what a mistake that would have been. Down markets can present an opportunity for investors who can ride out short-term volatility and uncertainty. In the following year, 2009, markets rebounded; in this educational example, Jordan and Shawna’s portfolio would have seen a gain of more than 26%, nearly erasing the previous year’s loss. Had they gotten skittish and left the market when things were down, they might have missed out on the subsequent rally.

Portfolio Advisory ServicesSM Account—Total Return Blended Growth with Income1

Past performance is no guarantee of future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. For informational purposes only. Returns for individual clients will vary.

Based on the performance of a composite of Fidelity Wealth Services accounts managed using the Growth with Income asset allocation, the total return investment approach, and blended investment universe. Please be aware that the return information differs, perhaps significantly, for an account that is not managed using the same configuration of strategy characteristics as the composite shown above. The Growth with Income asset allocation, total return investment approach, and blended investment universe were chosen because they are the most commonly used asset allocation, investment approach, and investment universe in the program. Please speak to your Fidelity representative for information about the performance of other strategy characteristics available through the program. Performance shown is pre-tax, and the assessment of taxes will reduce returns. Please see disclosures for additional important information regarding performance returns.

"Historical data has shown that the longer someone has been in the market, the lower their odds of experiencing a loss has been," says Denise Chisholm, director of qualitative market strategy at Fidelity Investments. "A portfolio’s odds of experiencing a loss in any given year have historically been about 22%. If you extend the time horizon to 3 years, the compounded returns had a 13% chance of experiencing a loss. If you extend it to 10 years, it’s 3%. So the more time in the market, the more a portfolio may be able to absorb short-term losses because, on average, the portfolio has time to bounce back."4

Myth #2: It’s time to try something different

Even when you’re able to resist exiting the market, it’s hard not to consider switching things up and changing your plan, perhaps by retreating to a more conservative portfolio allocation. In the educational example featuring Jordan and Shawna, they had initially selected a well-diversified "growth with income" portfolio because, at the time, they believed it was the best fit for their long-term goals. But while the 2008 financial crisis was certainly disruptive, Jordan and Shawna’s goals wouldn’t likely have changed. The shock of the drawdown in their portfolio may have just made them fear that they were less likely to reach their goals. Were Jordan and Shawna to remain focused on that long-term vision, they might be less likely to change the plan described in this educational example.

"Stocks are the growth engine in your portfolio," says McAdam. "It’s important to have a growth element in your retirement account to help sustain your standard of living and spending power. But stocks can be very volatile, so we offset that volatility with diversifiers, like bonds, to try and smooth out that volatility over time. This can help investors withstand the emotional ups and downs that the market can present."

"Equities can provide high returns over time," says Chisholm. "On average, since 1936, the total return of the S&P 500 is 12%, but about a fifth of that time, stocks were down an average of 12%.5 Historically speaking, for the best chance at enjoying positive returns over the long term, it’s likely that you’ll have to ride out some losses."

Taking the long view, an analysis of the performance of an account like Jordan and Shawna’s between 2008 and 2023 demonstrates that their initial plan was prepared to handle the occasional bump in the road. Over that period, Jordan and Shawna would have seen only 5 years in which their portfolio return was in the red, and their 10-year average annual rate of return would have been 5.42%. While this is no guarantee that something similar might occur in the future, it can be helpful to see how such an approach might have performed under the circumstances.

Myth #3: It’s time to cut back

So let’s say you stay in the market and stick to your plan. Surely, with the principal value of your account diminished so significantly, you’ll have to cut back on your withdrawals and, by extension, your spending. Again, it’s natural to react to a dip in your portfolio with some belt tightening. It just seems prudent. But it may not actually be necessary. Obviously, your circumstances may vary, but with a well-diversified portfolio, you may be able to weather less-than-stellar years in the market without having to significantly curtail your withdrawals or adjust your lifestyle.

For our fictional couple, this meant that over the period between 2008 and 2023, they would have been able to stick to their withdrawal strategy and get the funds they needed to live the lifestyle they wanted even when markets were down. In fact, by the end of that period, they would have withdrawn a total of $746,000 and still ended up with a portfolio value just over $950,000.

Staying disciplined

So how do you stay disciplined when you’re staring down a bear market?

  1. Begin by recognizing and acknowledging your emotions and how they influence your decisions. There are tactics you can use to keep your cool in difficult times.
  2. McAdam suggests that investors may want to explore setting up a more solid financial foundation that can help them feel more at ease. Setting up emergency savings or establishing a more predictable stream of income, such as from annuities, to address near-term needs may help you resist the urge to act when markets fluctuate.
  3. Think about working with investment professionals who can help tailor a diversified portfolio in accordance with your goals and risk tolerance. Knowing you have a professional watching over your portfolio can help to remove emotional or reactive decision-making from the equation.

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1. The Growth with Income strategy targets a long-term asset allocation of 42% Domestic Stock, 18% Foreign Stock, 35% Bond, 5% Short-Term/Money Market. Return information shown is based on a composite of accounts managed with the same strategy characteristics assuming an initial investment of $1 million. See below for information about the composite performance shown and the assumptions used in our performance calculations. 2. Withdrawals are assumed to be taken at year-end, are initiated at $40,000.00 for calendar year 2008, and are inflated at 2% each year thereafter. 3. The withdrawal rate being used is calculated by taking the portfolio withdrawal in the preceding column and dividing it into the Year-End Balance amount for that year. 4. S&P 500® total returns (includes reinvestment of dividends and interest), rolling 1-year periods from 3/31/1936 to 1/25/2023. The S&P 500® Index is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent US equity performance. It is not possible to invest in an index 5. S&P 500® total returns (includes reinvestment of dividends and interest), rolling 1-year periods from 3/31/1936 to 1/25/2023.

Past performance is no guarantee of future results.

Important information about performance returns. Performance cited represents past performance. Past performance, before and after taxes, does not guarantee future results and current performance may be lower or higher than the data quoted. Investment returns and principal will fluctuate with market and economic conditions, and you may have a gain or loss when you sell your assets. Your return may differ significantly from those reported. The underlying investments held in a client's account may differ from those of the accounts included in the composite. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

Before investing in any investment product, you should consider its investment objectives, risks, and expenses. This material has been prepared for informational purposes only and is not to be considered investment advice or a solicitation for investment. Information contained in this report is as of the period indicated and is subject to change. Please read the applicable advisory program's Form ADV Program Fundamentals, available from a Fidelity advisor or at

<Market indexes are included for informational purposes and for context with respect to market conditions. All indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Review the definitions of indexes for more information. Please note an investor cannot invest directly into an index. Therefore, the performance of securities indexes do not incorporate or otherwise reflect the fees and expenses typically associated with managed accounts or investment funds.>

Information about the calculation of account and composite returns. Returns for periods of one year or less in duration are reported cumulative. Returns for periods greater than one year may be reported on either a cumulative or average annual basis. Calendar year returns reflect the cumulative rates of return for the 12-month period from January 1 to December 31, inclusively, of the year indicated.

Reported rates of return utilize a time-weighted calculation, which vastly reduces the impact of cash flows. Returns shown assume reinvestment of interest, dividends, and capital gains distributions. Assets valued in U.S. dollars. Performance for accounts managed without tax-smart investing techniques begins when assets are available in the account. Rates of return shown are net of the actual investment advisory fees paid for each account, and are net of any applicable fee credits, any underlying fund's own management fees and operating expenses, and for certain Fidelity Wealth Services accounts the fees attributable to separately managed account sleeves. Performance information presented for an investment advisory program offered by Fidelity Personal Workplace Advisors LLC ("FPWA") includes performance for accounts enrolled in legacy programs previously offered and managed by FPWA's affiliate, Strategic Advisers LLC, for periods prior to July 2018. Fees for these legacy programs differ from current fee schedules for FPWA’s programs, and fees for accounts enrolled in those legacy programs may have been higher or lower than FPWA's current fees. Fee structures and the services offered have changed over time. Please consult a Fidelity financial advisor or the applicable investment advisory program's current Program Fundamentals for current fee information. Additional information about our methodology for calculating pre- and after-tax performance return information is available at in a document titled "About Performance."

Information about composite returns. The rates of return featured for accounts managed to a long-term asset allocation represent a composite of accounts managed with the same long-term asset allocation, investment approach and investment universe as applicable; rates of return featured for accounts managed with a single asset class strategy represent a composite of accounts managed to the applicable strategy. Accounts included in the composite utilize a time-weighted calculation, which vastly reduces the impact of cash flows. Composites are asset-weighted. An asset-weighted methodology takes into account the differing sizes of client accounts (i.e., considers accounts proportionately). Larger accounts may, by percentage, pay lower investment advisory fees than smaller accounts, thereby decreasing the investment advisory fee applicable to the composite and increasing the composite’s net-of-fee performance.

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Generally, among asset classes stocks are more volatile than bonds or short-term instruments and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Although the bond market is also volatile, lower-quality debt securities including leveraged loans generally offer higher yields compared to investment grade securities, but also involve greater risk of default or price changes. Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market or economic developments, all of which are magnified in emerging markets.

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