Why Diversification Matters More in Retirement
When you’re working, volatility is uncomfortable. In retirement, it’s personal.
You’re no longer adding to your account every two weeks. You’re taking money out. That changes everything.
Since 1940, U.S. equities have always fully recovered within five years after crashes.*
By keeping five years’ worth of expenses in safer investments like bonds or cash, you can avoid selling stocks during downturns, giving your investments time to recover and reducing the risk of locking in losses.
That’s why I like to keep five years of income out of the market. If we can protect that income in a safe spot, the rest can grow for later.
That growth can fund long-term care, higher expenses later in life, or a legacy for your kids.
Diversification isn’t just about owning a bunch of funds — it’s about protecting your withdrawal strategy.
When one part of your portfolio is down, another part can fund your income, giving the weaker area time to recover.
The biggest risk for retirees isn’t losing money on paper; it’s being forced to sell something when it’s down. That’s called sequence-of-returns risk — and it’s the reason diversification and cash buffers matter so much.
A smart retirement portfolio balances growth, income, and stability.
It’s not about beating the market — it’s about making sure your money lasts longer than you do.
* SOURCE: According to findings by Louis S. Harvey, the founder of Dalbar, U.S. equities have fully recovered within five years after crashes since 1940. Pechter, K (Jan 20, 2022). A 5-Year Cushion against Market Risk. Retirement Income Journal, January 2025 Issue
