When people think about investment results, they often focus on which funds to buy, when to make a change, or what the market might do next. Those decisions matter, but for many retirees and pre-retirees, the bigger swing factor is often much closer to home:
Investor behavior.
After more than two decades working with families, I’ve seen a consistent pattern: the best long-term plans can be knocked off course by perfectly human reactions- stress, uncertainty, headlines, and the urge to “do something” at exactly the wrong moment.
Below are a few practical ways to think about behavior, why it can influence outcomes, and how to build a process designed to help you stay steady- especially when markets get noisy.
Behavior often matters more than people expect
Investment returns come from the market, but your personal experience of those returns depends on what you do along the way- how consistently you save, when you add money, when you pull money out, and whether you change course during stressful periods.
A number of industry studies (including research often cited by firms that focus on performance psychology and investor decision-making) suggest that investor actions can meaningfully impact real-world results- sometimes as much as, or more than, security selection.
That doesn’t mean asset allocation is unimportant. It is. But it does mean that:
- A well-diversified strategy can be undermined by panic-selling or performance-chasing.
- A “good” portfolio may disappoint if it’s paired with an inconsistent process.
- A “reasonable” plan, followed consistently, can often be more effective than a “perfect” plan that gets abandoned.
For pre-retirees, this often shows up as changing course after a scary market month. For retirees, it can show up as overreacting to short-term declines and adjusting withdrawals in a way that creates unnecessary stress.
The “behavior gap”: why many investors fall behind the market
You may have heard the phrase “behavior gap,” popularized by financial educator Carl Richards and frequently discussed in investor research (including DALBAR’s long-running work on investor returns). The idea is straightforward:
Investors, as a group, often earn less than the investments they own- largely because of timing decisions.
Common contributors include:
- Selling after declines (locking in losses)
- Buying what’s already gone up (chasing performance)
- Switching strategies too frequently
- Reacting to headlines instead of following a plan
The goal isn’t to be emotionless. The goal is to have a repeatable approach that helps you make fewer high-consequence decisions under pressure.
Market volatility is normal- planning for it is the point
One reason behavior matters is that markets rarely move in a straight line. Even in long periods that end up positive, investors typically live through uncomfortable stretches along the way.
Historically, broad stock markets have experienced occasional pullbacks and periodic bear markets. That’s not a sign the system is broken- it’s part of the price of admission for taking market risk.
What tends to get investors into trouble isn’t volatility itself. It’s unplanned reactions to volatility.
For pre-retirees: sequence-of-returns risk becomes more personal
When retirement is 1–5 years away, every decision can feel amplified. A few helpful reminders:
- A retirement plan shouldn’t rely on perfect timing.
- Diversification and a thoughtful balance between growth and stability can help.
- The goal is often to reduce the odds of being forced to sell long-term investments at a bad time, especially as you approach the distribution phase.
For retirees: withdrawals make volatility feel different
In retirement, volatility can feel more intense because you may be drawing from your portfolio. That changes the conversation from “What did the market do?” to “What should we do next?”
Retirement planning often benefits from strategies such as:
- A clear spending plan (essentials vs. discretionary)
- A liquidity plan for near-term cash needs
- A withdrawal approach designed to adapt over time
None of these eliminate risk- but they can reduce the pressure to make rushed decisions.
Four behavior-based practices that can help
Below are practical, planning-oriented steps many investors find helpful. They’re not one-size-fits-all, but they provide a strong starting point.
1) Align your portfolio with your real life (not just your risk quiz)
A portfolio should reflect time horizon, income sources, withdrawal needs, and temperament. If the plan requires you to be braver than you actually feel, it may not be the right plan.
2) Use rules instead of feelings for portfolio changes
Consider in advance:
- When will we rebalance?
- Under what circumstances would we change the allocation?
- What would not cause a change (e.g., a scary headline, an election cycle, a single quarter)?
This helps reduce “decision fatigue” when emotions run high.
3) Focus on what you can control
Markets aren’t controllable. But several inputs are:
- Savings rate and debt decisions (pre-retirees)
- Withdrawal rate and spending flexibility (retirees)
- Diversification
- Costs and taxes (where applicable)
- Rebalancing discipline
Over time, controlling controllables often does more for financial confidence than trying to predict the next market move.
4) Build a communication plan for volatile markets
During stressful markets, many investors benefit from knowing exactly what will happen next:
- When will we review the plan?
- What scenarios are we watching?
- What action steps (if any) are on the table?
A good plan isn’t just numbers- it’s also a process for decision-making.
A quick note about my planning approach
At Dunncreek Advisors, our work is grounded in planning, discipline, and putting clients’ interests first. As a CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor, I focus on helping clients connect the portfolio to the person- because your plan is only as strong as your ability to stick with it.
That doesn’t mean ignoring new information or never making changes. It means making changes for the right reasons, with clear rationale, and in alignment with your long-term goals.
Want a second opinion on your current approach?
If you’re nearing retirement- or already retired- and you’d like help evaluating whether your investment strategy and withdrawal plan match your goals, I invite you to schedule a conversation.
You can request a complimentary get-acquainted meeting with Dunncreek Advisors to discuss what you’re doing now, what you’re worried about, and what a more decision-friendly plan could look like.
Frequently Asked Questions
1. How does investor behavior affect investment returns?
Investor behavior can affect investment results through decisions such as panic-selling during market declines, chasing investments that have recently performed well, or frequently changing strategies. A disciplined investment approach aligned with your long-term financial goals can help reduce emotional decisions and keep your retirement plan on track.
2. How can retirees avoid emotional investment decisions during market volatility?
Retirees can prepare for market volatility by establishing a clear spending plan, maintaining liquidity for near-term expenses, and developing a withdrawal strategy that accounts for market fluctuations. Working with a financial advisor to establish guidelines for reviewing and adjusting your plan can also help you make decisions based on your financial needs rather than short-term market headlines.
3. Why is behavioral financial planning important for retirement?
Behavioral financial planning considers both your financial goals and how you respond to uncertainty, risk, and market changes. By aligning your investment strategy with your retirement needs, personal comfort with risk, and spending expectations, you can develop a more practical plan that is easier to follow through changing market conditions.
This article is for educational purposes only and is not intended as individualized investment, legal, or tax advice. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Diversification and asset allocation do not ensure a profit or protect against loss in declining markets. Please consult a qualified professional regarding your specific circumstances. Dunncreek Advisors does not provide legal or tax advice.