Page 49 - AAA Magazine – AAA Ohio Auto Club – May 2019

photo: iStock/fizkes
When financial markets have a bad day, week or month, discomforting headlines and data can swiftly communicate a message to retirees and retirement savers alike: Equity investments are risky things and Wall Street is a risky place.
All true. If you want to accumulate significant retirement savings or try and grow your wealth through the opportunities in the markets, this is a reality you cannot avoid.
Regularly, your investments contend with different market risks. They never go away. At times, they might seem dangerous to your net worth or your retirement savings, so much so that you think about getting out of equities entirely.
Looking through relatively recent historic windows, the positives have mostly outweighed the negatives for investors.
Investing
Means
Tolerating
Some Risk
That truth must always be recognized.
By Jeremy N. Swank, ChFC
If you are having such thoughts, think about this: In the big picture, the real danger to your retirement could be being too risk-averse.
Is it possible to hold too much in cash? Yes. Some pre-retirees do. (Even some retirees.) They have six-figure savings accounts, built up since the Great Recession and the last bear market. It is a prudent move. A dollar will always be worth a dollar in America and that money is out of the market and backed by deposit insurance.
This is all well and good, but the problem is what
that money is earning. Even with interest rates rising, many high-balance savings accounts are currently yielding less than 0.5 percent a year. The latest inflation data shows consumer prices advancing 2.3 percent
a year. That money in the bank is not outrunning inflation, not even close. It will lose purchasing power over time.1,2
Consider some of the recent yearly advances of the S&P 500. In 2016, it gained 9.54 percent; in 2017, it gained 19.42 percent. Those were the price returns; the 2016 and 2017 total returns (with dividends reinvested) were a respective 11.96 percent and 21.83 percent.3,4
Yes, the broad benchmark for U.S. equities has terrible years as well. Historically, it has had about one negative year for every three positive years. Looking through
Continued on page 50
MAY 2019 | 47