"Stay the Course" is Becoming a Hard Pill to Swallow in This Market

The Stock Market Continues to Take a Beating, Should You Really Just Stay the Course?

Are you tired of hearing it yet? Most advisors and personal finance gurus continue to urge investors to stay the course, invest for the long run, and everything will be fine. Of course we know this is what history and conventional wisdom tells us, but when you’re seeing your nest egg drop by 5% in a single day, and drop by 30% or more in just a year, it can be quite annoying to keep hearing everyone tell you just to sit tight. Besides, it’s not their money, so what do they care if your account is dropping like a rock?

I’ve been meeting with a ton of people over the past few weeks, and I’ve encountered almost every type of investor you can imagine. I’m working with 25 year olds who are just getting started, to people who have already filed their paperwork to retire in a few weeks. As you can imagine, there is a big difference in priorities when you compare someone with 40 years until retirement with someone who will start drawing their pension and Social Security in a matter of weeks. But even with such different scenarios, the concerns are the same. Where is the market headed?

Everything from Opportunity to Complete Disaster

Depending on who you are and how close you are to retirement, you might view this situation as a great opportunity, or a complete disaster that’s going to force you to delay retirement. I’ve had some people in my office this week recognize the long-term opportunity and increase their contributions to their retirement plan significantly. I’ve also had people in my office that completely break down and start crying because of the impact this is having on their lives.

It’s easy for pundits to say what a tremendous buying opportunity this is, and it is true that if you have a number of years before needing the money, you will be rewarded. But when you’re talking about someone who’s already spent the last 20 or 30 years building up their portfolio, the market declines can far outweigh the benefits of buying a few investments on sale. If you have a $200,000 portfolio that drops 30% in a year, that $60,000 loss looks far greater than the $10,000 you might have contributed during that time. When people look at it that way, it’s easy to see why investors are quick to discount the boring advice of staying the course and continuing to invest.

Many Investors Act Like the Companies We’re Bailing Out

Many people right now would like to see financial company executives dragged into the street to be drawn and quartered after the government bails their companies out when they made bad decisions based on greed. But what most people fail to realize is that they often do the exact same thing when it comes to their own finances.

That’s right, if you’re portfolio is in bad shape right now, there’s a chance it is due to greed. People love to chase returns, and most investors do so not by trying to time the market, but by taking on more risk when times are good, while ignoring the possible downside and getting burned when things reverse course. Just like banks took on excessive risk lending to people, when the money was there, why not? The same is true for many investors. When the stock market is on a roll, people will gladly move out of their comfort zone to take advantage of the market. If the market has been returning 12-15% per year, why not take on a little more risk to grab some better returns?

And then, just like the bell tolled for the banks who took on too much risk, the same thing happens to investors. The market turns sour, and suddenly people who got greedy and tried to take a little more risk in the market are faced with losses they aren’t comfortable with. When you play with fire, you get burned.

Proper Asset Allocation is More Important Than Ever

This is where most people fail and struggle to find answers. I meet with a lot of people who are inside of five years until retirement, yet they come in upset that their 90% stock portfolio took a big hit. Of course, I always ask why they are so heavy in stocks if they are so close to retirement and can’t stomach the losses. The answer is almost always the same. Somewhere between 2003-2005, most people abandoned their recommended asset allocation in favor of holding more stocks because the market was doing well. They talk about how little interest the bond funds and fixed accounts were paying, so they figured it was better to own more stock. They soon found out that doing so creates a case of feast or famine.

That doesn’t mean you can’t be close to retirement and invest heavily in stocks, but for most people who are so shocked about the losses they’re seeing, it’s obviously more risk than they are willing to take. It’s important to remember that if you create a diversified portfolio, you’re probably not going to capture all of the gains in a bull market, but more importantly, you’re also not going to realize all the losses in a bear market. This is exactly what a diversified portfolio is supposed to do, but if you abandon your plan because you get greedy and want to reap the rewards of taking on a little more risk, you have to realize that things can and do change course, and with that risk comes the potential for greater loss.

The Past 20 Years of Investment Returns

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Table Legend

You Can’t Time the Market as Well as You Think

People who don’t want to stay the course and bail out of stocks think that they can beat the market. Is it true that if you dumped everything in favor of a money market or fixed account that you can virtually guarantee no future losses? Sure, but who’s to say you’re getting out at the right time? For all we know, the day after you make this decision, the market begins to stabilize and recover, and you’re left holding the bag on a fund with a 3.5% APY while the market made up 10% of its losses in just a week.

The way I see it, is that if you didn’t see the peak of the market back in October of 2007 and it took you a year of losses to make a decision to get out, what is the likelihood that you’ll be able to spot the exact bottom of the market and jump back in so you can recover all of the losses? Very slim. If it takes another six months or longer of a market recovery before you decide to get back in, you just missed the boat, and you’re going to be selling low and buying high.

So What Should You Do?

I can’t tell you what the best thing is to do, but before taking any drastic action you should ask yourself a few questions. Why are you upset over the recent performance? Is it because you’re close to retirement and holding too much in stocks? Is it because you’ve taken on more risk in the past few years and realize it might have been a mistake? Or are you just upset that you’re losing money even though you’re doing everything right?

It doesn’t matter what your situation is, but you need to recognize what is causing you to feel this way so that you can remedy the situation so that it doesn’t happen in the future. This might mean readjusting your portfolio, putting more money into bonds, or even increasing how much you’re investing. If you’re doing all the right things, taking on the appropriate level of risk, and understand the role each investment plays in your financial plan, then staying the course isn’t such a bad thing after all. But if you’re doing the wrong things and are taking more risk than you’re willing to stomach, it might be time for a change. Just make sure you understand the ramifications of the change and that you have all the information necessary to make an informed decision instead of reacting to headlines or sound bites on TV.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.


My compassion isn't lacking, but my patience with repeated comments is.

If you personally feel there is little evidence of a recovery, that's fine. A lot of people would agree. But even you say "near future" and you're speaking for a demographic that is in a position to rely on this money in just a few years. So if you're 50+ and have most of your money in stocks, and subsequently lost a lot of it recently, then sure, you probably shouldn't stay the course because it's something you shouldn't have been in to begin with.

But this site targets mainly the 30-something crowd, not the boomers who are just a few years from retirement. So, the advice here is going to address those concerns. If readers typically have 30+ years until full retirement, then yes, sticking with your investment plan and continuing to invest is still the best advice. If I were to write something for the older generation, obviously it's going to depend on a lot of things. Some people are 65 and invested mostly in stocks and just fine with the losses, while others can't afford to lose even 1% of their money. But those generally aren't the average reader.

Terry Wasson
Terry Wasson


Your compassion is certainly lacking. I lost 27% after years of being well diversified. I’ve watched
With a sick felling in my gut people following the pack and staying in with little chance of recovery.
Every so called expert advises everyone to Stay In or you will miss the greatest upswing in history .
I see little evidence of an upswing in the near future. Most investors are not savvy enough to chart their own investments
and must depend on advisors who will never ever advise anyone to get to while they still have some money.
I watch the greedy sharks buying even more convinced they are getting a bargain and making fun of people who get out to
Save what little they had left.
The truth as I see it: The market may not be a bargain and value may be actually near the correct amount after years of
Unrealistic highs. Everyone should at least consider perhaps we are facing many years of declines and you may never
Recover. Of course you will be there to point out it is their own fault .


Terry, if you're 60 and lost a lot of money that you don't have time to get back, that's your own fault (or your financial planner's fault if they are managing your investments). Someone 60 and in a position to rely on that money in a few years should be invested in a way that protects principal and generates income, not gambling heavily on stocks. If you were taking on more risk than you were comfortable with at that age, well, that was a mistake.

Terry Wasson
Terry Wasson

The only suggestion ever given is to
“Ride it Out”. I am 60 years old and I lost a very large amount of money that will never come back. To encourage
people to keep investing may totally ruin some lives.
If you are over 50 there is a very strong chance you will be dead by the time we recover.
I see little evidence of a recovery anytime soon and much more capital may be lost. There is surely a point where the loss is
so great that you will never recover. The always used line that historically the market always recovers may be not
accurate for today’s not so typical market. I personally will never invest again. I prefer to keep at least something to
retire on and not gamble it in a very uncertain market. I’m fully aware some of you will label me stupid and call me too weak to
be in the mutual funds. I hope I am wrong and those of you that stay with the “Ride it out crowd” don’t regret your choice.
I simply do not trust the market today and doubt I ever will.


Good article. These are certainly some trying times. I was always of the mentality that over the long haul (15-20) years the market outperformed other investments by 1-3% a year (though a bit more volitile) and so you were wise to slowly dollar cost average into it. Therefore, although I work really hard and make a decent living, I've been frugal and putting almost all of my extra money into broad based index funds and emerging markets and thinking that with 30+ years to retirement over the long run I'd slowly win to it. (I'm 30 and had about 300k put away in all.) But now to think that it's all down ~40% (emerging markets doing worse than S&P) and that I've lost over 120k makes me feel sick at times. Hopefully we rebound, but with all this talk of recession and such I don't see us bouncing back for 4-5 years at best.

I guess my point is that I just feel that I was unlucky (or robbed) to build up all my savings over the last 6 years, only to lose a huge chuck in this crash in 8 weeks?! Just bad luck/timing I guess.


As the original post says, there are two ways we can look at this. The first is that, if we are just a few years from retirement, we should be making plans for some of that money to be of the table, or at least in lower risk investments, exactly because we will need to access some of that money fairly soon. On the other hand, if we have a longer time horizon, we should use the opportunity that is presenting itself as a chance to wind up some deeply discounted equities and take advantage of their upside potential when the market comes back (and history tell us it will come back, knock on wood ;) ).

My personal rule of thumb is that any money I will need in 5 years does not get invested at all. That's Money Market or high yield savings account money. Anything between five and ten years I want to see in Bond funds or perhaps lower volatility dividend stock funds. If I don't need it for ten years or more, that's the stuff I let ride in whatever funds will give me exposure to the best potential long term growth (nothing flashy, either broadly based index funds or Growth funds in a number of different areas including small cap and emerging markets).

One piece to also think about is that we don't just invest up to retirement, we need to also invest *through* retirement. My grandparents retired at 65. My grandfather passed away when he was 76. My grandmother passed away when she was 96. that's a *long* time to need a nest egg to last. They wre able to do it, though, and they were not incredibly wealthy, so I can only surmise that they had some investments that kept working for them after they retired.

Goran Web
Goran Web

The market has shown me more recently to be wiser in my decisions and concentrate on the long term, safer solutions, great post.


Fern, I never said that it was, or that everyone was greedy, I simply said there was a chance that it was due to greed. But I meet with nearly 1,000 people each year, and the number of people who got greedy a few years ago far outnumber those who were prudent and kept their suitable allocation.

It's pretty easy to pull up someone's account history for the past 10 years and see those who were in a set portfolio for their age, and suddenly take on a 90 or 100% stock position because the markets keep churning out double digit returns. If you break your investment plan to take on risk in a market that's hot just because the money is there, you're being greedy and hoping to take advantage. So you can't be too surprised when the gravy train stops and suddenly you're losing more than you can afford to.

That's not to say that just because anyone's portfolio is down means they were greedy, and I wasn't trying to imply that. I'm simply pointing out that many people a few years ago tried to take advantage of something that was doing well, even if it wasn't in their best long-term interest, and are now shocked at the consequences.

And you're putting words in my mouth suggesting I said individual investors brought this on. They are a long for the ride, regardless of what caused it. But many people made their individual situation worse than it had to be because of some unwise decisions they made in the past.


You say, "That’s right, if you’re portfolio is in bad shape right now, there’s a chance it is due to greed."

This is SO not true. Nearly every sector, save real estate and precious metals, has lost money in this market and i resent the implication that i somehow brought this on myself.

With 10+ years before retirement, I had a conservative 60% in US domestic stocks, 15% in international stocks, 20% in bonds and 5% cash and i still got burnt along with everyone else.

What's happened in the stock market has nothing to do with market timing or failing to have the proper allocation. The mess on Wall Street is now a global phenomenon fed by greed and the ease with which financiers overlooked conventional lending standards.

I am holding the course, but please don't suggest this mess was brought on my individual investors.


Stay the course! :)


Great article, Jeremy. I was discussing these issues with some coworkers this week and made the comment that it all depends on your situation. For those close to retirement, this can be devastating to their portfolio. I'm still about 30 years out, so I look at it as an opportunity to increase my holdings. I know that over time, I should make up for these losses. As I get nearer to retirement age, I hope I will remember to allocate my holding accordingly.

...blogger's side note: to be honest, I was contemplating writing a similar article this week, but you've written it in a way that I won't even try to do it again - it's easier just to link! ;)


Matt, that's exactly what people SHOULD do, but most don't. It doesn't have to be 3% a year, or you don't have to have a target of 90% bonds by retirement necessarily, but you should have a specific plan in place to take subjectivity and emotions out of the process.

Unfortunately, most people want to be aggressive for as long as possible, and then when retirement approaches, suddenly lock everything into something safe. If you are lucky enough to want to retire at the height of a bull market, congratulations, you win. But for most people, timing never works out that way, and you get what we have going on right now.

But as you mentioned, this concept is what brought about these target date funds. They allow investors to choose one, and let the fund change over time automatically. They can be great options if used properly, but more often times than not, their retirement account might not offer one, or people think they can do better by creating their own portfolio.

But ultimately, the real trick is to have a plan and to stick with it through good times and bad. This can be painful on both sides of the coin. When markets are up and you're lagging a few percentage points, you get upset that you're missing out on something, yet when the market turns south, then you're mad because you're losing too much. And that's why it's so important to understand what your portfolio is meant to do, and to gauge your performance based on that, not just whether or not you're beating the market.


Thanks Jeremy! The first advice I have for anyone actually using blogs for financial advice is "you aren't smart enough to create your own portfolio". It's not an insult, I'm not either. If I was I wouldn't need blogs. Even financial managers can't time the market.

Choose a dated plan or get an index fund that offers one and just stick with it and don't look at your balance obsessively based on what the markets doing.

I only started a 401k this year (ironic, or maybe not considering it's a good time to buy) and I was glad they had a dated plan that did the money shifting for me. I'm civil service so I get a 5% match - 100% return there if only a small amount but it'll add up.

If I just stick to it in 20 years I'll have a nice nest egg. Not rich, but adequate and secure by the time I need it and let's face it - I'm never going to be a financial guru. Just not my personality but I don't want to be a chump either. The no-brainer plan that shifts your portfolio into lower and lower risk investments is the way to go. It's easy to fall into the role of Humphrey Bogart in The Treasure of the Sierra Madre (maybe that reference is old school for a 35 y/o gen xer). That film can teach you a lot about disastrous fantasies. You can get lost in delusions of grandeur when the moderate plan makes you, if not the richest, one of the safest men in Babylon.


Couldn't you just do this:
If you're say 30 and you want to retire at 60 - move about 3% each year from your index fund to bonds so that by the time you're 60 90% is in safe bonds. Every year you get safer and safer.

It's simplistic but shouldn't it work? The Civil Service has an automatic version of this with their 401k. Mine is called 2030 b/c that's when I (roughly) want to retire. Every year the portfolio is automatically adjusted so that more goes into bonds and what's left in stocks gets less and less risky.

Right now the stock portion is somewhat risky but gets less so over time as your near retirement. It seems sensible to me and now is time to invest anyway.


For people in their 30s, this is a great time to max out your 401(k) if you are not already doing that. You'll need to in order to support yourselves and potentially your parents depending on how badly they are doing.

I did finally have the retirement talk with my parents (57 and 51). They are doing OK because they are diversified, but if my father has to stop working as a cabinetmaker due to health reasons, they will be in trouble because my youngest sister is still in high school.


Thank you for this measured look at investments and the stock market. Since I do have a longer horizon, I am not as worried as my parents and in-laws are right now. However, none of my investments have ever been flashy. I may not ever get the really sexy returns, but I have been seeing steady, inflation-beating growth. And to me that's what matters.