Page 53 - AAA Magazine – AAA Ohio Auto Club – January 2019

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You learn lessons as you invest in pursuit of long-term goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.
First and foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by
all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news,
the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.
The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations.
Long-Term Investment Truths
Key lessons for retirement savers.
By Jeremy N. Swank, ChFC
You learn how much volatility you can stomach.
Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500*. Across 1926-2014, the annual total return for the S&P averaged 10.2 percent. If you want to be very casual about it, you could simply say stocks go up about 10 percent a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 percent from its mean total return in this time frame, which means that if you add or subtract 20.2 percent from 10.2 percent, you get the range of the index’s yearly total return that could be expected 67 percent
of the time. So, in any given year from 1926-2014, there was a 67 percent chance that the yearly total return of the S&P might vary from gaining 30.4 percent to losing 10.0 percent. Some investors dislike putting up with that kind of volatility; others more or less embrace it.1
You learn why liquidity matters. The older you get,
the more you appreciate being able to access your
money quickly. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.
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