Market Drops, Beyond Buy and Hold: The Power of Rules-Based Investing

When markets drop, it's natural for anxiety levels to rise—especially among clients nearing retirement. Having spent over two decades guiding state employees, educators, and healthcare professionals through their retirement journeys, I've seen this reaction repeatedly. It's understandable: no one wants their carefully built retirement savings to diminish just as they're preparing to depend on them.

Yet, market downturns present more than just risk—they offer valuable opportunities, particularly when approached with a disciplined, rules-based investment strategy designed specifically to protect your capital.

Active Management: A Different Perspective

When markets turn volatile, passive investment approaches leave you completely exposed to whatever happens. It's like being in a boat during a storm without a rudder. Yes, historically markets recover – but that knowledge provides little comfort when you're planning to retire in the next five years.

This is where active management makes a crucial difference. Rather than simply riding the market's waves up and down, active management allows for strategic adjustments during periods of volatility.

The Pitfalls of Buy and Hold in Retirement Planning

Throughout my years hosting the Money Matters podcast and advising clients across the nation, I've consistently observed a critical misunderstanding: retirement isn't a single event, but rather a dynamic, evolving process. The traditional "buy and hold" strategy may work for investors with decades of accumulation ahead, but it can be particularly hazardous for those close to retirement.

During market downturns, emotional reactions—such as panic selling after significant declines—can turn temporary setbacks into permanent losses. For those nearing retirement, the timing of these losses, known as "sequence of returns risk," can irreparably damage retirement security.

Moving Beyond Buy and Hold: A Proactive, Rules-Based Approach

My philosophy, developed through experiences at Merrill Lynch, UBS Financial Services, and now as CEO of Houston First Financial Group, emphasizes proactive capital preservation. Unlike buy and hold, our rules-based approach ensures portfolios are actively managed to safeguard your hard-earned savings.

Implementing Rules-Based Investing for Capital Preservation

The cornerstone of our approach involves preset catastrophic stop-loss mechanisms. These rules systematically trigger adjustments well before severe market downturns cause significant harm, substantially reducing portfolio exposure to higher-risk assets during volatile times.

For instance, consider a common scenario: a university professor approaching retirement, navigating pension coordination and complexities related to the Social Security.

In stable markets, their portfolio might aim to balance growth and income. However, during significant market downturns, our disciplined rules-based strategy immediately takes action:

First, catastrophic stops proactively shift assets away from riskier investments as market signals weaken, effectively preserving capital before substantial losses accumulate.

Second, we systematically leverage opportunities such as tax-loss harvesting, enhancing tax efficiency, and providing long-term financial benefits.

Third, continuous evaluation and rebalancing towards lower-volatility investments ensures the portfolio maintains a robust defensive stance aligned with capital preservation goals.

All these actions are carefully integrated with pension and Social Security strategies, creating a cohesive and resilient financial plan tailored specifically to your unique needs.

Why This Rules-Based Approach Matters Now

Market volatility is a constant reality, not just theoretical speculation. Having guided clients successfully through multiple downturns, including the 2008 financial crisis and the 2020 pandemic market crash, I've consistently witnessed how disciplined, rules-based capital preservation significantly enhances retirement outcomes.

The critical insight for retirement success isn't about perfectly timing the market—it's about consistently applying disciplined rules to proactively manage inevitable market fluctuations.

Comprehensive Retirement Strategy

Beyond portfolio management, downturns also create ideal opportunities to reassess your broader financial strategy. In my work with healthcare professionals and educators, I stress the importance of holistic planning—covering sustainable income, healthcare expenses, spending habits, and legacy considerations—especially during periods of market uncertainty.

Your Next Steps

If you're nearing retirement, particularly as a state employee managing pensions and Social Security complexities, don’t simply endure market volatility—leverage it through disciplined, rules-based capital preservation.

Assess your portfolio’s readiness against significant downturns. Does your current investment strategy have proactive rules to protect your retirement savings? Does your retirement income strategy integrate seamlessly with your pension and Social Security?

For over two decades, I've helped Houstonians transform potential retirement challenges into strategic opportunities. Properly managed through disciplined, rules-based investing, market volatility can enhance—not threaten—your retirement security.

When markets decline, see beyond the immediate drop. Recognize the power and value of rules-based investing, ensuring your retirement stays secure even amid uncertainty.

Christopher Hensley is President and CEO of Houston First Financial Group, a Retirement Income Certified Professional®, Certified Estate Trust Specialist ™ and host of the Money Matters podcast. He specializes in helping state employees, educators, and healthcare professionals successfully navigate retirement planning complexities through disciplined, rules-based investing.

These are the opinions of Christopher Hensley and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk