With the recent enormous crash of the market, that seems like a less than stable plan.
Only because you are new to investing.
The last thing I would want to do is leave my wife and I in a position where we cannot support ourselves due to a complete lack of funds in our golden years - is there any way for me to prepare for our retirement that doesn't hinge upon the performance of the market?
Most universities feel the same way about their billion dollar endowments. (a "Forever Fund" that is drawn down at a prudent 4-7% a year to fund essential programs). And since university boards of directors include a wildly disproportionate number of investment bankers, you can bet that they make the smartest investments it is humanly possible to make. And your university's donor relations office will cheerfully tell you how they invest.
Retirement investment has two phases.
First, invest like an endowment.
Until about age 50-55, you have the same goals as a university endowment: to achieve maximum growth given an infinity time scale. As such, you want the same strategies as an endowment. A highly diversified mix of investments, that very coarsely looks like this +/- 5%.
- 65% domestic (e.g. USA) stocks.
- 15% foreign stocks.
- 10% high paying bonds.
- 5% real estate trusts.
- 5% cash-likes (strictly as a hedge)
Why on earth...? Because when your investment deadline is forever, you think differently about money. The daily ups and downs of the market simply do not matter and stop being Big Scary Risk -- they become a different word, volatility. It's just 'that thing the market does'.
And if volatility is trivial, then what matters? Long-term growth. Or how the market grows over the very long term.
The stocks aren't individually chosen but are the most costs-efficient way to get high diversification. For where to go with that, look at John Bogle's book Common Sense on Mutual Funds. TLDR: use index funds.
So now, this opens up a different question: Is long-term growth worth short-term volatility? Well, go look for yourself. Is it?
- Ok, ok, wait. There's actually a complication here, and that is dividends. See, in an endowment (or a retirement plan), we don't care whether Ford stock goes up by $1.37 or whether Ford pays a $1.37 dividend, because by law we have to invest all of it back in the endowment. However, the dividend has an effect on Ford stock: it makes it worth $1.37 less. Dividends make the stock look worse than it is. You must give full credit for dividends and treat them as if they're reinvested back into the company. This makes a huge difference over long periods of time, because of compounding. Ford is a glaring example of this!
- You need to diversify anyway, so the best way to do this comparison is to look at ETF index funds which already do that thing: they reinvest the dividends back into the fund and so dividends show up as share price increase.
- So when you factor for dividends and their reinvestment, reality is even better than Philipp's chart above.
The biggest threat to an endowment is costs and other fees; Costs/fees are a guaranteed total loss you suffer every year regardless.
Second, walk back out of stocks as you near retirement age.
If you were going to live forever, you'd just draw down 5-7% a year like an endowment, and your retirement would last forever. However most people's drawdowns are driven by need, and being "all-in" makes you vulnerable -- if the market goes off a cliff like it did last month just as you need it, you could be forced to have a fire-sale on stocks just to raise cash!
In other words, "volatility" has finally become "risk".
Well before your need, you start walking back out of the stock market. The stock market usually does well in a 20 year window and always does well in a 30 year window, so you start very slowly altering your investment mix. Move a few percent a year out of growth investments (stocks) and into bonds, cash-likes and more sure/stable investments.
So maybe at age 60 you cut it to 70% stocks. At age 65 you're at 55% stocks. It's still ok to be mostly into stocks, because you have quite some time to recover from a downturn. At age 70 you're at 40% stocks. At 75 you're at 25% stocks. Etc. You walk yourself out of stocks. As you do, you sacrifice raw growth potential in favor of less risk of volatility. You won't be destroyed by a sudden market downturn at the worst possible time... but you also enjoy less profits from good market performance. It's a trade-off.
You adjust the asset mix to suit your risk tolerance.
And, if you're in a "Target fund" e.g. a Target 2060 fund, your 401K's fund will do all of this automatically for you.