Retirees: Sidestep these four pitfalls in a declining market

How to take advantage of the bargains without jeopardizing your well-laid plan.

Christine Benz 22 January, 2016 | 6:00PM
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For young investors, weak markets should be reason to cheer rather than hand-wring, because they provide the opportunity to add to stocks when they're cheap(er).

Older and retired investors can profit during weak markets, too, by scooping up securities on the cheap. But declining markets can also be painful. Not only can big daily drops in the stock market bring a little heartburn, they also have the potential to inflict lasting damage. After all, investors with shorter time horizons may not have the time recover from equity-market downturns; remember that it took the Nasdaq Composite 15 long years to find its way back to the high it scaled in 2000. Moreover, actively drawing cash from a portfolio that's declining in value can reduce its sustainability, because less of the portfolio is there to recover when stocks actually rebound. That's why you often hear that sequence-of-return risk--encountering a bum market environment early in retirement--is a particular problem for young retirees with too much staked in stocks.

Of course, there's no telling whether the recent market volatility will be a short blip or the start of something more prolonged. But if the volatility persists, here are four pitfalls that retirees should be careful to sidestep.

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About Author

Christine Benz

Christine Benz  Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

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