Though financial headlines have played up the lack of volatility thus far in 2017, personal finance pages continue to dispense advice on how a new retiree should deal with what is often presumed to be the biggest risk they face: negative volatility early in retirement. Yet this looks at markets from an unbalanced perspective, and it ignores a big risk that can negatively affect the health of your portfolio late in your retirement years.

The idea that volatility is particularly trying early in retirement is tied to this line of thinking:

  1. You need to withdraw from your portfolio, because you are retired.
  2. Negative volatility means each withdrawal you take is a higher percentage of your assets, increasing the risk you will run out of money.
  3. Hence, there are a series of prescriptions--some ok and some awful--that the media will dole out to you for free, which mostly center on carrying a huge amount of cash, employing an odd strategy where you ratchet down equity exposure dramatically early in retirement and up it later -- or even worse.

Much of the free advice and "logic" shared around this issue isn't logical at all. It seems like an extreme case of myopic loss aversion--the human tendency to feel losses more than twice as much as we appreciate gains--being rationalized into a "strategy."

The trouble with this line of illogic is that it ignores why retirees own stocks in the first place: compound interest. A positive return earned early in your retirement is vastly more important to your long-run finances than a return earned late. If you presume early retirement is the time to dial back equity exposure, you disregard this truth. The simple fact is, volatility doesn't know direction and often comes -- irregularly -- in bunches.

Volatility is clearly uncomfortable and can be even more so for a new retiree. And we thoroughly agree with the notion an investor is well served to have a plan for bear markets. For example, you should know what your expenses are and how you can reduce them if needed. You should have an emergency fund you'd never invest in stocks, bonds or anything else (though don't get carried away by loading up on low-returning cash).

But avoiding or slashing equity exposure with the thought you'll ratchet it up later risks your later years, presuming you have a long time horizon. A 60-year-old American in good health can expect to live at least 20 years in retirement -- a conservative estimate would be even longer, considering nonagenarians (folks over 90) are the fastest-growing age demographic in America today. Over that long span of time, volatility doesn't pose much of a threat. What does threaten your retirement is not earning a sufficient longer-term return to offset inflation's impact and fund your later years.

It may be bad to suffer through volatility early in retirement but, we'd argue it is much worse to suffer late in life from failing to earn a sufficient return early in retirement.

Equity markets' higher returns are a result of volatility. It isn't your enemy. As legendary investor Benjamin Graham put it, "The investor's chief problem -- and even his worst enemy -- is likely to be himself." Not volatility.

Fisher Investments is an independent, fee-only investment adviser serving investors globally. To learn more about Fisher Investments, please visit

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