By David Munn, CFP
When the stock market takes a tumble, it’s easy to feel nervous—especially if you rely on your investments for income. The temptation to sell when prices fall is natural, but it’s also one of the most damaging decisions investors can make. That’s why having bond exposure in your investment portfolio isn’t just a good idea—it’s essential. Think of bonds as your financial seatbelt, helping you stay buckled in during market turbulence without derailing your long-term plan.
Why You Don’t Want to Sell Stocks When They’re Down
The stock market isn’t a straight line up—it’s more like a rollercoaster. Market corrections, defined as a drop of 10% or more from recent highs, happen more frequently than many people realize. In fact, historical data shows the stock market experiences a correction roughly once every 1 to 2 years. These drops are normal, even expected, but they can feel unsettling—especially if you’re retired or nearing retirement and need to start taking money out of your investments.
Selling stocks during a downturn locks in losses. You miss out on the potential recovery, which can happen quickly and without much warning. For example, after the sharp COVID-induced crash in early 2020, the S&P 500 rebounded over 60% in just five months. If you had sold during the panic, you would have missed a significant part of that recovery.
Bonds: Your Income Buffer
This is where bonds come in. Bonds are typically more stable than stocks and tend to hold their value—or even increase—when stocks are falling. That stability makes them a great source of funds when you need to make withdrawals. Instead of selling stocks at a loss, you can draw from your bond holdings or cash reserves while waiting for the stock market to recover.
At our firm, we advise clients to maintain at least 5 to 7 years’ worth of planned withdrawals in bonds or cash. Why that specific number? Because while market corrections are common, true bear markets—when stocks drop 20% or more—tend to recover within a few years. Historically, most bear markets in the U.S. have recovered their losses within 3 to 5 years. By having enough safe, liquid assets to cover 5 to 7 years of income needs, you’re giving your stock investments time to rebound without having to touch them when prices are low.
What About Now?
With the current volatility in the market it’s understandable that investors are feeling uneasy. We've seen several sharp pullbacks over the last few years, and it’s likely we’ll continue to see ups and downs.
But this is exactly why a well-balanced portfolio with both stocks and bonds is so important. Stocks offer long-term growth. Bonds offer short-term stability. Together, they create a more resilient investment strategy—one that allows you to weather the storm without reacting emotionally or making rash decisions.
Final Thoughts
Market corrections are not a matter of “if,” but “when.” They’re a normal part of investing. The key to long-term success isn’t avoiding the ups and downs—it’s preparing for them.
By maintaining 5 to 7 years’ worth of planned withdrawals in bonds or cash, you’re creating a buffer that lets your growth investments recover. You don’t have to sell stocks when they’re down. You don’t have to panic. You can stay on track with your financial goals, no matter what the headlines say.
This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. This material is not intended as any form of substitute for individualized investment advice and social security planning. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. Past performance may not be indicative of future results. Munn Wealth Management, LLC, is registered as an investment adviser (RIA) with the United States Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply any certain degree of skill or training. 1323GSM