I’m 12 years from retirement, the future looks like a ‘train wreck’ and I want out of the market. Should I sell?

Dear Paul,

I’m 56 years old, and my wife and I have good jobs that we expect to keep for at least a dozen more years. Our savings are on track for retirement, well diversified in a mix of stock funds and bond funds, with around 80% in stocks.

I know that as an investor I’m supposed to buy and hold and stay the course. But frankly I think that could put my mental health at risk.

Even though I welcome some of the changes that seem to be in the works, our country is so bitterly divided right now that I feel our future and our economy are headed for a train wreck.

My wife feels the same way. We think we should sell half our portfolio and put it into something that will keep its value, perhaps a money-market account.

You’ll probably tell me this is a bad idea, but doing nothing feels like a much worse idea.

— Stressed Out

We can never predict the future as much as we think we can.

Dear Stressed

First of all, don’t ignore your feelings. Second, you and your wife should take some time to jointly decide what to do, after some careful thought.

Buying and holding is the best long-term approach that I know. But you’ll never do that successfully if you’re worried every day that things are going to crash.

We’re talking about money you and your wife may not need for 12 years. But it’s money you will definitely need when you retire.

I want the two of you to think about how you got to where you are now, with apparently good savings habits and a significant portfolio at age 56.

If you started serious investing 25 or 30 years ago, you must have survived the two dreadful bear markets (anticipated by almost nobody) in the 2000s, the aftermath of the housing recession and the shock of other events, such as the infamous attack on Sept. 11. 

I’m guessing you continued investing through those long periods when the future looked bleak. That sort of perseverance is one of the most powerful factors that contributes to long-term success.

I have three pieces of advice.

The first: Hang in there and “hold your nose.” That’s something long-term investors must do when they don’t like what they’re seeing (or smelling).

The second: Don’t ignore your feelings (or those of your wife). If either of you is losing sleep over this, that could mean you are taking too much risk. Your sell half idea is a clear sign to that effect. (And I won’t sleep so well myself if I think I encouraged you to ignore that fear.)



The third: Protect what you have accumulated so far by rethinking the makeup of your portfolio and your additional investments over the next dozen years.

The following is a course of action I have recommended to investors in your situation, and many have told me it increased their comfort level.

At age 56, you probably have already accumulated most of what you will need to retire. And it’s quite possible its growth could double the number of dollars over the next 12 years.

Your current allocation of 80% in stocks is pretty aggressive, and it has probably served you well recently. But I suspect you will want to be less aggressive when you retire.

Let’s imagine that your comfort level at retirement calls for a 60/40 allocation instead of 80/20.

Step one is to convert your current portfolio to that more moderate allocation now. Yes now. That will help protect what you already have from the “train wreck” that worries you.

Here’s step two: Allocate your future investments 100% in stock funds, as if you were starting a new investing career. That way, if things turn out as badly as you fear, you’ll have the chance to buy stocks at bargain prices.

This “new money” will likely be a relatively small part of your nest egg when you retire, and in fact you might never need it for yourselves. It could wind up being what you and your wife will eventually leave to your heirs.

Maybe 60/40 isn’t the right retirement allocation for you, and I use that only as an example that many people have found to be comfortable.

Last spring, I wrote an article describing how my wife and I manage investment risk. I recommend this article not to suggest that you do what we have done, but to help you think about the issue.

There’s a short table showing what sort of worst-case losses you should expect from various combinations of stocks and bonds. That little table could be the start of a good discussion between you and your wife.

Finally, I hope you will gain and keep a long-term perspective on major crises this country has weathered in the past.

When the U.S. was plunged into the Civil War, it was obvious that the country was (to use your phrase) “headed for a train wreck.” And yet life went on.

When the stock market crashed in 1929, wiping out many fortunes and prompting a few brokers to leap to their deaths from Wall Street skyscrapers, markets eventually recovered.

When Germany and Japan both declared war on the U.S., we were in a heap of trouble for which we were not prepared. And yet, the stock market and the economy did very well during and after the war.

We can never predict the future as much as we think we can. Personally, I am pretty sure that at some point, the market will fall by 30% to 50%. This will likely start when almost nobody is expecting it — from a cause that’s not on anybody’s radar today.

Here’s one final suggestion — dirt-cheap and easy — that will improve your comfort level without affecting your investments: Make a point to look at the markets and the value of your portfolio less often than you are currently doing.

Have a question about investing? Send it to paul@paulmerriman.com. Although he can’t guarantee to answer them all in this column, Paul will read every one.

Richard Buck contributed to this article.

Paul Merriman and Richard Buck are the authors of “We’re Talking Millions! 12 Simple Ways to Supercharge Your Retirement.”

Delivery Method. Paul Merriman will send stories to MarketWatch editors on a biweekly basis. Licensor may republish such stories 24 hours after publication on MarketWatch with the attribution.