MML #063: Everyone’s Nervous About The Market. The Data Isn’t.

Between recent conflict with Iran, markets swinging on every headline, and the S&P 500 about 7% off its recent high, I understand why you might want to move everything to cash and wait this out. 

I know lot of the lawyers are feeling that pull right now.

But before you make any moves based on what's in the news cycle, let's look at what the data actually tells us about investing during times like these.

Drops Are Normal. Positive Years Are More Normal.

In its Guide To The Markets research, J.P. Morgan tracks every year of S&P 500 returns going back to 1980. The average intra-year drop is 14.2%. That means in a typical year, the market falls about 14% at some point before recovering.

And yet, annual returns were positive in 35 of those 46 years.

Yep, you read that right. The market dropped double digits almost every year. And it still finished higher more than 75% of the time.

Sentiment Is a Terrible Compass

Market optimism, as measured by the Consumer Sentiment Index right now sits at 56.6, well below the long-term average of 77.5. People feel lousy about the economy. That feels like a reason to stay on the sidelines.

But historically, low sentiment has been followed by strong returns. The average 12-month return after a sentiment trough is 24.1%. After sentiment peaks, when everyone feels great? Just 3.9%.

The moments that feel the worst have historically been the best times to be invested.

All-Time Highs Aren't a Warning Sign

Since the start of 2025, the S&P 500 has hit 43 all-time highs. That sounds alarming until you look at what typically happens next.

J.P. Morgan compared forward returns from all-time highs versus any random day. At two years out, investing at an all-time high returned 29% on average. Investing on any random day? 26%. At five years, the numbers are 82% versus 76%. Almost identical.

Over 31% of all-time highs became permanent market floors, meaning the market never went back below that level.

Time Fixes What Headlines Break

From 1950 to 2025, the worst single year for stocks was a 37% loss. Brutal. But stretch to any rolling 5-year period and the worst outcome was negative 2%. Over any rolling 20-year period? Stocks never lost money. The worst 20-year stretch still returned 6% annually.

This is why time horizon, or the time you have to invest, matters more than timing.

How This Applies to Your Retirement

If you're 10+ years from retirement, this data speaks for itself. Stay invested. Stop checking your portfolio every time cable news runs a scary headline. Remember, the goal of any great movie is to create enough drama to keep you tuned in. Investment news is no different.

But if you're closer to retirement or already there, the numbers change a bit. You can't afford to sell stocks during a downturn to cover next month's expenses. That's where having the right portfolio structure does the heavy lifting.

Here’s what that might look like: roughly two years of distributions in cash and cash-like assets. Another 3-5 years sits in bonds and other stable assets. Everything beyond that stays invested for long-term growth.

When markets drop, you pull from the cash bucket. Your stocks have time to recover. You're never forced to sell at the worst possible moment.

And on top of that structure, using key market levels that serve as “income guardrails” to guide spending decisions can add additional security while potentially boosting lifetime income. Say you retire with $2.5 million and plan to withdraw $125,000 a year. If your portfolio grows to $2.8 million, you give yourself a raise. If it drops to $2.1 million, you trim spending by 5-10%. No panic. No dramatic overhaul. Just small, planned adjustments based on how your portfolio is actually performing.

Quick disclosure: please don’t get fixated on these specific guardrails above. They’re an example only to illustrate how income guardrails provide guidance. More importantly, don’t just blindly apply them to your portfolio if you happen to have $2.5 million. These guardrails are carefully set and based on a plethora of factors. If you’re interested in the math or understanding your specific guardrails, I’d encourage you to reach out. 

The bucket strategy protects you from short-term volatility. The guardrails keep your spending sustainable over 25-30 years. Together, they replace the urge to time the market with a system that actually works.

The Real Risk

The biggest threat to your retirement isn't a market crash. It's sitting in cash for years, earning next to nothing, while inflation quietly erodes your purchasing power.

You don't need to outsmart the market. You need a structure that lets you stay invested through whatever comes next.

If you’d like to see what your specific income guardrails and bucket strategy looks like, schedule some time here, and I’ll walk you through how it works.