Retirement Investing During Market Downturns

Thursday, March 13, 2025

We’ve seen a share market downturn in recent months. When the share market takes a tumble, it is natural to feel anxious about your investments and your retirement nest egg.

However, seasoned investors know that staying the course is often the wisest strategy and this should also be applied with any retirement investment plan.

Here are six key reasons why it's best to stay invested during market downturns, along with insights into market cycles and the role of cash investments.

1. Market Cycles Are Natural

The stock market moves in cycles, consisting of four main stages: accumulation, markup, distribution, and markdown. Understanding these cycles helps investors maintain perspective during downturns. The markdown phase, where prices fall, is a normal part of this cycle and is typically followed by a new accumulation phase, where savvy investors start buying again.

Historically, markets have rebounded from significant declines, such as the 2008 financial crisis or the COVID-19 crash, often reaching new highs over time.  In Australia, during these down times, the Government made allowances for easing the stress on retirement portfolios, reducing pension minimums and thereby providing the option for reducing Cash withdrawals until markets recovered.

2. Timing the Market Is Extremely Difficult

Trying to perfectly time when to exit and re-enter the market is highly challenging and often results in missed opportunities.  Staying invested through both peaks and troughs has historically yielded strong returns over decades, whereas missing just a few of the best-performing days can significantly reduce gains. If you sell during a downturn, you risk missing these crucial moments.

3. Buying Opportunities Arise

Market volatility and downturns enable investors to position themselves better for future market returns. When prices are low, it's an opportunity to acquire quality investments at a discount. In this way, Fund Managers take advantage of investments at discounted prices which have been created by the downturns.

This strategy can potentially boost your long-term returns.

4. Compounding Still Works

The power of compounding becomes more significant the longer you stay invested. Even through market volatility, your investments have more time to grow. By remaining invested, you allow your returns to generate further returns, potentially accelerating wealth accumulation over time.

5. Emotional Decision-Making Is Avoided

Selling investments in a panic during market falls is likely to lock in losses. Staying invested helps maintain discipline and a long-term perspective, avoiding costly emotional decisions.

It's crucial to remember your initial investment goals that were discussed with your Financial Adviser regarding your retirement investment plan. These were based on your retirement objectives and unless those have changed your Adviser should make any suggestions needed regarding your portfolio.

The Role of Cash Investments

A diversified portfolio helps cushion against market volatility by spreading risk across different asset classes. Keeping a portion of your portfolio in cash or low-risk investments provides liquidity for this aspect of your retirement investment plan:

1. Cash on Hand: Cash investments provide a buffer during market volatility so you can withdraw money for any specific needs and not sell investments in shares.
2. Opportunity Fund: Having cash on hand allows you to take advantage of buying quality stocks when prices are low.
3. Diversification: Cash can help balance your portfolio, reducing overall risk.

Remember, diversification is key to weathering market storms. A well-diversified portfolio spread across different assets and regions helps manage risk. Even if part of the portfolio falls in value during periods of volatility, others may perform well, balancing out your overall returns.  This is certainly the case within the current market conditions.

In conclusion, while market downturns can be unsettling, they're a normal part of the investment cycle. By staying invested, you position yourself to benefit from the eventual market recovery. Keeping a long-term perspective is vital, as market downturns offer unique opportunities at lower prices. Combine this approach with a strategic cash reserve, and you'll be well-equipped to navigate the ups and downs of the share market.

As always it is best to consult your retirement investment financial planner regarding your individual circumstances and retirement strategy.  Maher Digby Securities are specialists in retirement planning and offer a complimentary initial consultation.

For more Information contact Mark Digby at Maher Digby Securities Pty Ltd - Financial Advisers – AFSL No. 230559. This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor.