10 Years, 10% Returns: The Strategy That Outlasts Most Market Cycles

The Henssler Ten Year Rule is the core principle of the financial plans we build. It enables investors to stay invested in the stock market for the long term, even through periods of depressed prices and high volatility.

To begin, any funds needed from the investor’s portfolio within the next 10 years for living expenses should be allocated to fixed-income investments that mature in the year the required. We first determine whether the investor needs to draw from their investments to supplement other sources of income. For retirees, this may be the difference between their annual spending and what they receive from Social Security and pensions. For those still working, the money may be earmarked for a significant purchase, such as a vacation home or a child’s education.

We recommend placing this money in individual U.S. Treasury bonds, Government Agency Bonds, AA- or AAA-rated municipal bonds, and FDIC-insured CDs to protect principal. These bonds should be purchased with the intent to hold them until maturity, aligning maturity dates with the investor’s liquidity needs. Holding to maturity helps to combat interest rate risk since the investor should receive the bond’s face value at the end of its term, barring a default by the issuer of the bond, even though its price may fluctuate in the interim. While default risk can never be fully mitigated, using U.S. Government-backed securities or very high-quality municipal bonds provides a substantial amount of protection against this risk. Buying bonds that mature each year creates a bond ladder, ensuring that 2035’s spending is covered by a 10-year Treasury bond purchased in 2025, for example. We recommend purchasing fixed-income investments to cover rolling 10-year periods—securing 2036 liquidity in 2026, and so on. Each year the market is up, we sell equities to fund liquidity needs 10 years into the future. This structured approach protects spending for at least a decade.

Should the market experience a pullback, the investor can wait for a recovery before selling equities to replenish their fixed-income holdings. In most cases, the Henssler Ten Year Rule helps investors avoid selling equities during poor market conditions, as recessions typically last about 10 months. Even the Great Recession from 2008–2009 lasted only 18 months, with the market taking 48 months to reach new all-time highs. A 10-year horizon also outlasts two presidential terms and most economic cycles, which average about five and a half years.

Furthermore, over rolling 10-year periods, the stock market tends to be higher. Since 1931, there have been only two periods of negative rolling 10-year returns: 1999–2008 and 2000–2009. However, during these periods, the market was down only an annualized 1.38% and 0.95%, respectively, while the average annual return for large-cap stocks has been 10.2%.

With a high degree of certainty, investors can assume their equity investments will continue to grow over the long term. This strategy also allows them to stay invested and perhaps even continue dollar-cost averaging into the market during downturns. Avoiding the market’s declines may mean missing its upswings, as 78% of the stock market’s best days occur during bear markets or within the first two months of a bull market. Missing the market’s 10 best days over the past 30 years would have cut returns in half, while missing the best 30 days would have reduced returns by an astonishing 83%.

While history doesn’t often repeat itself, it frequently rhymes.

If you have questions on how to apply the Henssler Ten Year Rule to your financial plan, the experts at Henssler Financial will be glad to help: