“There is so much wrong with this thinking that it’s hard to know where to start.” Were you ever told that if you invested regularly in the market and left them alone, that over time you would realize an average return of around 7% or 8%? There are years where the market is up but then again there are years where it is considerably down. But supposedly, over the course of your working life your returns will “magically” average out to around 7 or 8%.
What do you consider Long-Term? Those that claim the 7% to 8% number must go all the way back into the late 1800’s. If relevant today, that’s only 100 or so years of data. In a number of those decades, returns were negative. As a matter of fact, we just lived through one of them.
There have been 20-year periods where the stock market did not produce returns anywhere near this quoted long-term average, and over the last 114 years there were periods of seventeen, eighteen and twenty-five year spans where the market was either flat or down.
What does it mean to those about to retire or those already in retirement? Ask the following; Are your retirement assets positioned to reflect this form of thinking? Assuming the markets will always be up? If the markets do stay flat or down for a prolonged period, will your current investment strategy allow you to maintain your lifestyle? Basing your retirement income on the premise that stocks always go up in the long-term is like going to the casino. The variable is TIME! Do you have enough time to wait for these returns to materialize? Consider re-positioning a portion of your retirement assets so that your hard-earned funds will provide you with an income stream you cannot outlive.
By Mike “Cy” Cajthaml, CFP®, ChFC®, CLU®