Missing 10 Best Days Halves 20-Year Returns for S&P 500 Investors

Q: The retirement red zone can permanently destroy wealth, so what specific bucket strategy protects your cash when the market suddenly crashes?

The protective bucket strategy is a time-segmented “Spend, Protect, Grow” approach built around a cash reserve for near-term withdrawals, so retirees are not forced to sell stocks after a crash. In practice, the “Spend” bucket holds the money needed soonest in stable, liquid assets such as checking, high-yield savings, money market funds, Treasury bills, short-term CDs or very short-term bonds. The common guideline in the supporting research is about one year of living expenses in cash, or roughly one to two years of portfolio withdrawals if Social Security or a pension covers part of spending. The “Protect” bucket sits behind that cash reserve and usually covers the next two to four years, or in some versions three to 10 years, using conservative assets such as high-quality short- to intermediate-term bonds, bond funds, Treasuries or a CD ladder. This bucket is designed to refill the cash bucket during normal conditions without tapping stocks at depressed prices. The “Grow” bucket remains invested in long-term equities and other growth assets for money not needed for at least five to 10 years. That is the part meant to ride out volatility and preserve purchasing power over a long retirement. The key rule is maintenance: spend from cash during a downturn, refill cash from dividends, interest and bond maturities, and only trim stock gains to replenish reserves after markets recover. This structure directly addresses sequence-of-returns risk in the retirement red zone.

1 articles · Updated · Kiplinger's Personal Finance · Aug 14

$10,000 invested in the S&P 500 from 2005 through 2024 grew to $71,750, but missing just the 10 best trading days cut that to $32,871, according to J.P. Morgan research.
Seven of those 10 best days came within 15 days of the 10 worst days, showing why investors who flee volatility often miss the rebound they were trying to wait out.
Schwab data on annual $2,000 contributions found perfect timing produced $186,077 by end-2024, while simply investing on the first trading day each year still reached $170,555; staying in cash lagged far behind at $47,357.
DALBAR said the average U.S. equity investor returned 9.24% annually over the 20 years ended 2024 versus 10.35% for the S&P 500, with 2024 alone showing a 25.02% index gain against 16.54% for investors.
For investors nearing retirement, the report argues the bigger risk is structural rather than tactical: build near-term spending reserves and long-term growth buckets instead of waiting for a perfect entry point.