Your working years are defined by growth: building a career, starting a family, saving diligently, and investing with an accumulation mindset.

Then, suddenly, you retire. And you receive a new modus operandi: cautiously unspooling what you’ve worked so hard to put together. The wealth engine you’ve spent decades fueling now needs to run on its own.

In the accumulation phase, volatility can be disconcerting. But you aren’t reliant on your savings — you’re still working and actively contributing to your portfolio, which helps offset any near-term snags.

In retirement, volatility has a far more tangible impact, so the same growthoriented investment strategy no longer applies. As we saw in the first chapter, a steep market drop early in retirement can drastically alter your portfolio’s longevity without proper adjustments.

That said, with an investment strategy and philosophy built around preservation, your portfolio could not only provide reliable income but also continue growing to meet your long-term needs. A balanced allocation — such as a 60/40 blend of stocks and bonds — can help sustain withdrawals while mitigating extreme market downturns. For example, if a 100% stock portfolio plunges 34%, a 60/40 portfolio would fall just 20%, assuming bond prices hold steady.

In this chapter, we’ll explore how to approach investing in retirement, focusing on balancing growth and preservation. You’ll learn why your portfolio is more than just a dollar figure on your statement, how to structure an allocation that fits your needs, and how to remain invested with confidence through market fluctuations.

Understanding Your Sources of Retirement Income

Your investments don’t exist in a vacuum — they’re one piece of a larger income strategy that drives how you’ll fund your retirement. Most retirees rely on some combination of the following sources:

• Social Security benefits: These benefits are designed to replace around 40% of pre-retirement income for the average worker. Since they provide a guaranteed income stream, they form a key pillar of retirement security. (We’ll discuss Social Security more in the next chapter.)
• Pension funds: While traditional pensions provide guaranteed lifetime income for recipients, they’ve largely disappeared from the private sector, as only 15% of non-government employees are eligible for a pension.
• Retirement investments/personal savings: Whether held in 401(k)s, IRAs, brokerage accounts, or other savings vehicles, this is the portion of your wealth you control and need to manage effectively. Withdrawals from these accounts will likely make up the majority of your income.

These three income sources were compared to a threelegged stool — each leg providing equal stability for retirement. But today, most retirees only have two legs to stand on, underscoring the need for an optimized investment strategy and withdrawal plan (the latter of which we will cover in detail in chapter IV).

For many, your portfolio is now your financial foundation. That’s why balancing growth and preservation (i.e., ensuring your assets continue to generate income without taking excessive risk) is essential to making your savings last.

Rewiring Your Brain: Why Your Account Balance Isn’t Everything

When you look at your retirement account statements, what do your eyes immediately snap to? A dollar figure.

This number looks real. It’s tangible. You can see it, monitor it, and watch it move in real time. But it’s theoretical.

Most (if not all) of your retirement savings aren’t sitting in cash. They’re invested in assets — mutual funds, exchange-traded funds (ETFs), stocks, and bonds — that constantly fluctuate in value. The dollar figure on your dashboard is simply the estimated amount you’d receive if you hit the “sell all” button today.

When would this decision actually make sense?

Investors are most inclined to panic during periods of extreme volatility and economic turmoil. The Great Depression, the global financial crisis of 2007–2009, the COVID-19 pandemic — there were very real, very intense events unfolding across these historical periods. Except those who sold at market lows, realizing losses in the process, often missed out on the inevitable rebounds that followed.

Suppose the market opens tomorrow and proceeds to fall 10%. Your account balance drops. Panic sets in. You convince yourself that selling now is the safest move — just until things “stabilize.”

Here’s the problem: Waiting for stability is usually a losing bet. A Vanguard analysis found that investors who move to cash and wait for a “safer market” are fighting against the odds:

• 54% chance of underperforming if you stay in cash for one day
• 74% chance of underperforming if you stay in cash for one day
• 87% chance if you sit out for one year

The real risk isn’t a market decline, it’s staying on the sidelines during “unprecedented times” while it recovers.

Living in “Unprecedented” Times

Every financial crisis feels like the worst one. Every recession is framed as unprecedented. The headlines scream catastrophe, so-called experts debate whether markets will ever return to former heights, and panic spreads.

History tells a different story. Each of the 27 bear markets since 1929 successfully recovered.

Yet every time the market declines, the same fear resurfaces: “This time is different.”

It’s human nature to buy into these fears and hinge yourself to the account balance reflected on your dashboard. Watching the dollar value you’ve worked so hard to build fall 10%, 25%, or 33% can feel, quite literally, gut-wrenching.

Now, let’s put this in perspective with a realworld example.

You’re not quite ready to retire, but you’ve mentally tossed around some ages or life milestones that could serve as your proverbial finish line. Over the last few decades, you’ve diligently saved and amassed a respectable portfolio that’s benefited from a relatively aggressive allocation.

It’s early Monday morning, you’re on your way to work, when you realize: “Wow, it’d be a beautiful day for golf.” Then that inkling of a thought crosses your mind, “If only I were retired…”

So, you decide to check your retirement account:

“Soon,” you think to yourself.

Then, markets open. For the purposes of this example, we’ll assume the worst — a figurative meteor hits the stock market, cratering lofty valuations (especially for tech companies) and squeezing portfolios. Opening your account details, you face an unwelcome shade of red.

A loss of this magnitude is a lot to absorb.

On paper, this would be one of the worst trading days in history. But it’s also just one snapshot in time. Unless you plan to liquidate your entire portfolio at once (which is never advisable), that bright red $195,000 is misleading. Painful to see, yes, but misleading.

What happens after this market crash matters far more than what happens during it. In every major downturn, from the Stock Market Crash of 1987 to the Great Recession in 2008, markets eventually rebounded. Those who stayed invested reaped the benefits.

The next time you check your account balance and see red, remind yourself: you don’t own dollars — you own shares. As long as you stay invested, those shares are still working for you.

Unlike your account balance, the number of shares you own generally doesn’t fluctuate with market volatility. Shares represent ownership: a stake in the companies and funds that generate the returns fueling your retirement. If anything, a major pullback in share prices lowers the entry point to accumulating more shares.

Your retirement portfolio isn’t meant to be converted entirely to cash today. Most of it will be “called into service” years from now. For the shares you’ll need in 5, 10, or even 25 years, staying invested means they have the opportunity to grow in value over time.

Building a Retirement Portfolio: Balancing Growth & Preservation

Retirement portfolios typically have two competing interests:

• What you need your investments to do (generate returns).
• What you can tolerate emotionally and financially (weather market volatility).

Even when you first retire and start drawing from your savings, the vast majority of your portfolio will fund future years. If, for instance, your initial withdrawal rate is 5%, that means 95% of your portfolio will fund years 2, 3, 5, 10, and so on. In short, generating returns is still an objective — your portfolio needs to keep growing to outpace inflation and sustain your income for decades.

At the same time, your ability to withstand market downturns is different in retirement than during your working years. Unlike before, you’re not actively contributing to your accounts, and you may not have the same flexibility to ride out volatility without making withdrawals. A steep market decline could lead to selling assets at depressed prices, which permanently locks in losses and shortens your portfolio’s lifespan.

This creates a critical tradeoff: How do you invest in a way that allows your portfolio to grow while ensuring it provides the stability needed to weather inevitable market fluctuations?

Finding the Right Asset Allocation

Balancing growth and preservation ultimately comes down to asset allocation — the mix of stocks, bonds, alternatives, and cash in your portfolio. Your allocation determines both your potential upside and your ability to weather downturns.

Historically, stocks have provided the highest long-term returns but come with greater volatility. Bonds offer lower returns but provide stability and income. Cash and cash-like investments offer liquidity but often lose purchasing power over time due to inflation.

So, what’s the right mix? A 60/40 portfolio — 60% stocks and 40% bonds — is often cited as an all-weather strategy for balancing growth and preservation. This isn’t a rigid allocation. It can (and should) be tailored to your situation, based on several factors:

• Portfolio size: The more assets you have (and, in turn, the lower your withdrawal rate), the more risk you could potentially afford to take.
• Risk tolerance: If market volatility makes you anxious or could lead to impulsive decisions, a lower stock allocation may help ease your mind. No one wants to spend their retirement stressed about excessive investment risk.
• Time horizon: If you expect a long retirement, maintaining enough growth assets is critical to avoid outliving your money.
• Other income sources: Pensions, Social Security, rental income, or annuities can reduce reliance on portfolio withdrawals, allowing for a more growth-oriented approach.

Choosing the Right Investments

Once you’ve determined your target asset allocation, the next step is selecting the investments that will fill those buckets. The right mix of investments should align with your growth needs, risk tolerance, and withdrawal strategy, while also keeping costs low and avoiding unnecessary complexity. At a high level, assets in your retirement portfolio typically seek to accomplish three objectives: growth, stability, and liquidity.

Practical Steps for Retirement Investing

1. Pay Attention to Costs

When selecting investments, cost matters. That’s particularly true in retirement, when fees and expenses can eat into your withdrawal strategy. ETFs and lowcost index funds generally provide the best balance of diversification, tax efficiency, and affordability.

For example, a mutual fund charging a 1% expense ratio means you’ll pay $10,000 in annual fees for every $1 million invested, whether the fund performs well or not. Compare that to broad-market ETFs, which often have expense ratios under 0.10% (or just $1,000 per year on $1 million invested).

2. Avoid Overconcentration

While it may be tempting to hold concentrated positions in individual stocks, a particular sector, or even an employer’s stock, doing so adds unnecessary risk. A broad, well-diversified mix of investments reduces the likelihood that any single company or market downturn will derail your portfolio.

This also applies to geographic diversification. Even though US markets have historically delivered strong returns, international stocks provide additional growth opportunities and can help mitigate risks tied to any one economy.

3. Rebalance Periodically

Market fluctuations will inevitably shift your asset allocation over time. If stocks experience a strong rally, they may make up a greater percentage of your portfolio than originally intended, which could leave you exposed to more volatility than you’re comfortable with. Conversely, if stocks decline, your portfolio could become overly conservative, potentially limiting longterm growth.

Make sure to keep your portfolio aligned with your target allocation, rebalancing should become a routine part of your schedule (at least annually).

Key Takeaways

Your portfolio isn’t simply a dollar figure on your screen.

You own shares in businesses and investments that generate returns over time. While market swings affect the number you see, your shares remain working assets that grow and produce income for the future.

Market volatility is inevitable — how will you respond?

Reacting emotionally to downturns can lead to costly mistakes. History shows that staying invested tends to be the safer path than jumping in and out of the market.

Your asset allocation should balance growth, income, and liquidity.

A 60/40 portfolio has long been a go-to framework for retirees, but the right mix for you depends on your risk tolerance, time horizon, and income needs.

Portfolio diversification reduces risk.

Overconcentration in a single stock, sector, or even country can lead to unnecessary exposure.

High fees and expenses can eat into your returns — and your portfolio longevity.

Index funds and ETFs are generally reliable for low-cost, diversified exposure.

Periodic rebalancing helps keep your investment plan on track.

Over time, market fluctuations can (and likely will) cause your asset allocation to drift. Rebalancing aligns your portfolio with your long-term strategy.