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“What, me worry?” — Alfred E. Neuman
What should worry me more—inflation or market declines? Both reduce the value of our savings, but they behave very differently. Inflation tends to work slowly and quietly. Market declines, by contrast, often happen quickly and visibly.
Consider several bear markets—defined as declines of 20% or more in the S&P 500.
| Bear Market | Market Decline | Time to Bottom | Time to Recover |
| 1973–74 Oil Crisis | -48% | 21 months | ~7 years |
| 1987 Crash | -34% | 3 months | ~2 years |
| 2000–02 Dot-com Bust | -49% | 30 months | ~7 years |
| 2008 Financial Crisis | -57% | 17 months | ~4 years |
| 2020 COVID Crash | -34% | 1 month | ~5 months |
| 2022 Inflation Bear Market | -25% | 9 months | ~2 years |
Market declines are dramatic. A drop of 20% to 50% makes headlines and captures attention. I feel those losses immediately.
Inflation rarely produces the same kind of head spinning headlines. Instead, inflation gradually erodes purchasing power. Inflation over long periods has often fallen somewhere between 2% and 4%. For this example, let’s use 3%.
At 3% inflation, purchasing power declines roughly as follows:
| Years | Purchasing Power Remaining |
| 10 years | ~74% |
| 20 years | ~55% |
| 30 years | ~41% |
Being invested in businesses—through stocks or stock funds—has historically helped investors keep up with or outpace inflation over long periods, though the path is rarely smooth.
Inflation tends to be slow but persistent. Market declines tend to be sharp but temporary.
Both are simply part of the investing journey.
Some investors maintain a portion of their portfolio in cash as “dry powder,” available if markets decline sharply. How much to hold varies widely. Some hold very little. Others hold more. At times, even well-known investors have accumulated significant cash reserves.
Which should worry investors more?
Research assistance for historical market data was provided with the help of an AI research assistant.
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I just read an article which reports the results of a survey conducted in July 2025 of older adults fear of retirement income. The study found the following, “Aside from Social Security, the only area where a majority of respondents believe (governmental) policy is likely to lead to severe changes in their lifestyle is inflation.”
The bigger problem has to be the silence killer, inflation. Especially when you are planning for self-funded long term care with the surviving spouse with single filling tax status. Market crushes will recover, but not inflation.
if the stock mkt drops 50% will you be able to maintain your lifestyle?
Interesting question: I think I would be able to maintain my lifestyle, however I am sure I would purposely make changes. But, it is unlikely that I will change my lifestyle dramatically based on inflation.
I experienced each of the bear markets mentioned, as an adult. Try running a capital intensive business under those circumstances. By comparison, I have found investing to be easy if one avoids the experts; some of whom are snake oil saleswomen. But, which is which? The “time to recover” is a reason for retirees to hold some cash, but then the 2021 bond route showed an inherent, but infrequent flaw in bond funds. And yes, that $1 million nest egg after saving 30 years will have substantially less purchasing power than the face value of the account. I think many don’t take consider the erosion of inflation. I guess it is something to worry about in the future. Of course, by then, it is too late. However, I think some of us older ones have developed muscle memory about this and we instinctively understand these things. Younger investors may be lured by the siren song “you have decades to save and compounding will work miracles”. That is, until a severe recession occurs on the cusp of retirement. Then “oops” or perhaps I should say “poof” as a significant portion of those 30 years of savings evaporate.
Very interesting, but without thinking, Inflation is what kills portfolios. Just think of the last third of life, inflation is likely to more than double! and maybe 2.5 to 3 times. So my take is and what I do, is put 85% of all my money in the S&P 500, and 15% cash to tide me over when the market goes down. When the market has a hiccup like last April or a down trend like the early 2000’s, you have to be disciplined and sell NOTHING. Be patient and wait out the storm. By the way, that dark period 2000 to 2013, does end, and thanks for the period 2014 to 2026!
Focusing on bear market dips seems like an invitation to market time. If one had simply remained invested over these time periods, the long term total returns for a 60/40 investor should be in the 8.0%+ range. The “real” return after fees (23 basis pts) and inflation (2-3%), should still provide a reasonable long term rate of return. And, if you can stand the volatility of a higher equity exposure, your comfort margin should be even greater.
PS – as I write this the stock market is continuing its decline, the S&P down around 3.5% YTD, and about 5% off its recent record highs.
This is a good time to do a gut check on how confident you are in your current decumulation set up. Are you feeling at all queasy as you watch the daily stream of red parade across the ticker? Or are you feeling calm or maybe even a little excited, filled with the anticipation of a great buying opportunity or a chance to do some Roth conversions?
Until I read this comment, I’d been happily ignoring what the market was doing. A healthy disregard for the day-to-day noise has served me well. If correction talk starts gathering momentum, I’ll pay attention — but I won’t act until we’re looking at a 15% drop. Until then, benign neglect it is.
As a thought experiment I guess this is one way to help each person discover any “blind spots” they might have related to either of these two.
As an actual dichotomy, I don’t see the need to choose. It’s like asking a right-footed soccer play which leg is more important, their left or their right?
As defined benefit pensions go the way of the dodo bird, a growing number of retirees are faced with turning their hard-earned savings into an income stream that they need to make last for 20-40 years or more (usually without ever knowing how long they will actually live). Not an easy trick to pull off, but doable if the right withdrawal strategy and portfolio management approach is used.
The reality is that either one of these – inflation or bear market – has the potential to derail a retiree’s decumulation plan, and the ways to protect against them are well-known and relatively easy to implement. Both are a good idea, and having just one is going to be inadequate to protect against the other.
So – asset allocation to buffer market volatility and inflation over the long haul; and a fixed income source (bonds, pension, social security, passive income) to protect against sequence of returns risk when cash is needed during a bear market. Some people like a bond ladder made up of TIPS to provide a mid- to long-term source of inflation-protected cash.
William, thanks for this thought provoking post. Alfred E Neuman was actually one of my early mentors (I had a subscription). This probably helps to explain some of my issues.
Dan, I don’t think many here at HD are familiar with one of the great philosophers of our generation. 😁
I wish Mr. Neuman would have written a self help book on stress management. It would have been a huge bestseller. 😁
And then there is the period from March 2000 to April 2013 when the S&P 500 accomplished nothing. 13 years after the peak in March 2000 the S&P was at the same level. If you dollar cost averaged through that period you would have done well emphasizing how important it is for long term investors to just put things on auto-pilot if you can.
Great observation. We all love dollar-cost averaging.
It seems to me there are two broad groups of readers at HD: those still in the workforce—or otherwise adding new savings—who can continue to dollar-cost average, and those who have transitioned into the “third-third” of life and are no longer adding fresh money to their portfolios.
I am into my last third, but I am still DCA into our brokerage account to save up for long term care for both of us. Not much but a bit at a time, and now it is a 7 figure.
Of the two, inflation is by far the more troublesome. As you note, volatility is largely temporary — it comes and goes. Inflation, by contrast, is relentless and persistent. Which brings us to what might be finance’s best-kept joke: we need volatility precisely to compensate for inflation. A classic chicken-and-egg situation.
At my stage of life 68 years old inflation is more of a concern. With a 45/45/10 allocation I have plenty of time for markets to recover from a significant drop (although with only 45% equity exposure my portfolio should not drop nearly as much as the market), and go higher.
Per AI since I retired core inflation has cumulatively increased by 24%, and each increase going forward is compounded. Being a math wizard I know that that means a 1 million dollar retirement portfolio when I retired can only purchase 760K in goods today.
Ironically my wife mentioned she is a little nervous that we have spent so much money already this year (primarily due to a trip to Barbados in February to escape the cold).
I think I allayed her fears when I pointed out three facts: 1) I did a back of the envelope calculation of our non discretionary spending and it only totals $40K per year as we own our house and cars thus if necessary we could contract our expenses down to next to nothing, 2) our portfolio is at nearly the same as it was when we retired in 2020 despite buying two high end new Toyotas, 3) I looked at the financial plan calculated three years ago with a probability of 93% success and we are 150K ahead of what that balance was projected to be.
So in a nutshell I’m chill, her 🤔
David,
Are those references to the state of your portfolio in 2 & 3 nominal or real values?
…just curious…thanks.