A retirement portfolio takes years to build, but one emotional decision during a market downturn can wipe out a significant portion of those gains permanently.T. Rowe Price and Warren Buffett have both identified the same mistake that costs retirees more than almost any allocation error in a diversified portfolio. The error is selling stocks during short-term market declines, and the data on its long-term damage is difficult to ignore once you see the numbers.Both sources point to the same protective strategy, though they arrived at it from entirely different investment philosophies and career-long starting points.T. Rowe Price data reveals the cost of selling stocks during market dropsA $10,000 S&P 500 investment held from January 2005 through December 2024 grew to $61,750 for investors who never sold, T. Rowe Price reported. Missing the 10 best trading days during that same period reduced the final balance to $22,871. Investors who missed the 20 best days finished the two-decade period with only $9,724, below their original $10,000 investment.Matthew McKay, CFP and director of investments at Briaud Financial Advisors, says retirees should map out their expenses before adjusting portfolio mix, as CNBC reported.Understanding spending needs is the most important item to begin mitigating this [sequencing] risk, rather than starting with portfolio allocation.The best trading days tend to cluster near the worst, so investors who sell during sharp declines nearly always miss the recovery rallies that follow. Single-year stock returns ranged from -43% to +61% during the study period, which explains why the pull to sell early is so strong.”For long-term investors, there is value in remaining invested and avoiding emotional reactions to short-term market moves,” Lindsay Theodore, Thought Leadership Senior Manager at T. Rowe Price, wrote.Warren Buffett wrote his anti-panic strategy into his estate planBuffett addressed the same risk in his 2013 letter to Berkshire Hathaway shareholders, where he revealed the investment instructions he left for his wife’s trust.He told the trustee to place 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds, recommending Vanguard’s fund by name.During bear markets, his wife could withdraw from the bond allocation “instead of selling stocks at the wrong time,” Buffett explained.More Retirement:Delaying Social Security to a certain age could cost you $144,000Dave Ramsey warns Americans on 401(k)s, IRAs (he’s not wrong)Vanguard reveals health account best for retirementBuffett cited the Dow’s rise from 66 to 11,497 across the 20th century as evidence that long-term equity holders are consistently rewarded for patience. Buffett reinforced the instruction’s credibility by noting that “my money is where my mouth is,” confirming his personal portfolio follows the same strategy.The 90-10 split “is more of the universal rule of thumb for retail investors,” according to a 2014 CFA Institute analysis of Buffett’s strategy.
Warren Buffett’s estate plan favors a 90-10 portfolio, using bonds to fund withdrawals during market downturns instead of selling stocks.CNBC / Getty Images
The T. Rowe Price allocation data behind the pressure to sellAn 80/20 portfolio averaged 9.3% annual returns over 30 years through December 2025, with a worst single-year decline of 29.8%, T. Rowe Price reported.A 60/40 split averaged 8.2% annually over the same stretch, but its worst-year decline was a more manageable 22.1%. A fully invested stock portfolio returned 10.4% annually over those same 30 years but posted a worst single-year decline of 37%, the firm reported.Portfolios with a higher bond allocation narrowed those swings, T. Rowe Price noted, which can help smooth out overall portfolio volatility over time.The firm recommends saving at least 15% of annual income for retirement, including employer contributions, to build a balance large enough to weather extended downturns.What retirees can take from Buffett’s cash-reserve blueprintA cash or short-term bond reserve sized to cover two to three years of withdrawals is what stands between a retiree and a forced sale during a downturn. One stress test cuts through the noise: If the portfolio lost 30% overnight, could the next 12 months of bills still be paid without touching equities? If not, the cushion needs work. Buffett didn’t design his wife’s inheritance around predicting the next bear market. He designed it so she’d never have to react to one. That’s the part of his plan any retiree can replicate without Berkshire-scale wealth, and the part T. Rowe Price’s research aligns with. Related: Overlooked retirement risk facing millions of savers