MARKETS DO RECOVER
Not counting the current decline, there have been 10 bear markets since 1950, defined as a decline of 20% or more from the market’s previous high (as measured by the performance of the S&P 500). Yet, the stock market has always climbed back. The reality is that stocks climbed an average of 10.26% per year from 1926 through 2019 – through the Great Depression, World War II and multiple armed conflicts, including those in Korea, Vietnam, Afghanistan, and Iraq, as well as many economic and political shocks.
While there is no guarantee, investing in a combination of funds holding different types of investments – stocks, bonds, and cash – is a time-tested strategy for managing risk and may even help improve returns over the long term. Diversification works like this: When one asset class – stocks, for example – loses value, another asset class, such as bonds or cash, may deliver positive returns that can help offset those losses.
In addition, you can achieve an additional level of diversification by investing in subgroups within asset classes. Stocks, for example, have a variety of different categories, such as domestic, international, large capitalization, medium capitalization, and small capitalization. There are stock funds that invest in specific sectors of the economy. However, diversification does not ensure a profit or protect against losses in a declining market.
BUY ON SALE – WITH DOLLAR-COST AVERAGING
When you have money taken out of your paycheck to go into your retirement plan account and be invested on a regular basis, you are doing what is called “dollar-cost averaging.” With dollar-cost averaging, you invest a fixed amount of money on a regular schedule in shares of stock or a fund.
When share prices fall, the fixed amount you invest buys more shares. Basically, you are taking advantage of a “sale” on fund shares when you continue adding money to your retirement account on a regular schedule during times when prices are lower. The bottom line: Downturns give you an opportunity to buy investments on sale.
STICK WITH IT
If at all possible, keep saving and investing. All else being equal, the more you can save, the better your chances are of reaching your retirement goal.
1 Diversification does not ensure a profit or protect against loss in a declining market.
2 Dollar-cost averaging involves regular, periodic investments in securities regardless of price levels. You should consider your financial ability to continue purchasing shares through periods of high and low prices. This plan does not assure a profit and does not protect against loss in any markets.
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Nothing contained herein should be considered as investment advice or a recommendation or solicitation for the purchase or sale of any security or other investment. Opinions contained herein should not be interpreted as a forecast of future events or a guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.
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