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People ask us all the time, "What do you recommend? Should I be more aggressive? Should I get out of the market?" There are no cookie cutter answers, so I won't attempt to offer one. However, if we are up-to-date on your personal circumstances, goals, and timeline, we can definitely make personalized recommendations for you.
“If we sell now, when will you get back in?” That answer is obvious in hindsight, but not so obvious in real time. We can look back on market returns and easily see the highs and lows! Unfortunately, they cannot be seen in real time without a crystal ball.
Maybe rather than focusing on the highs and lows, it is better to focus on long-term trends. Historically, the returns of the stock market have far outpaced inflation and the returns of less risky investments. When making portfolio decisions, it is necessary to keep the long-term view in mind.
Yes, investing in the stock market involves risk and you can lose money. But for long-term investment goals, like retirement planning, not investing in the stock market can mean lost opportunity. You essentially create a potential risk of not having adequate funds to afford your future standard of living.
It is important to organize your money by objectives (what do you want the money to do for you?) and timelines (how long do you have until you need the money?) Equities and stock market investments have their place in portfolios as do more conservative investments like CDs, bonds, and government treasuries. It just depends on the “job” those pots of money are being asked to do for you.
Having a long-term investment strategy that solely focuses on saving in conservative/ fixed investments robs your future of purchasing power. Over time, with conservative investments, you might be able to say that you have never lost any money and that you’ve had consistent returns. However, time and the compounding effects of inflation would undoubtedly reduce the purchasing power of your portfolio.
Including equities in your investment plan is important, especially for long-term planning. Staying in equities is important. Jumping in and out of the stock market is a dangerous game where you have to be ‘right’ twice. The likelihood of someone jumping out at the right time once is slim, and then back in (jump number two) that could be nearly impossible.
Continually evaluating your plan is important, as is modifying it when necessary. Having a conversation with trusted advisers can help you keep your retirement goals on track for success.