Stocks Go Up, Stocks Go Down – But Too Much in Cash Can Leave You Short
“The stock market was sharply higher today as investors were heartened by strong economic reports.”
“Stocks skidded today in the wake of lower than expected earnings.”
You probably hear news reports every day about the ups and downs of the stock market. But what happens over 10, 20, or even 30 years – the length of time you might be living in retirement? If you look at history, stocks have stood the test of time better than more conservative investments, such as bonds and cash investments.
Are Your Investments Safe?
You might think it’s a lot “safer” to put your money in a conservative investment – such as a money market or stable value fund. After all, you’re unlikely to lose your principal, or the original amount you invest. But investing conservatively has its own risks. That’s because more conservative investments tend to have lower returns. (Conversely, riskier investments, such as stocks, are likely to have higher returns over time.)
Inflation Can Hurt You
Inflation is the continual rise in the cost of living. Even if inflation runs at a fairly slow rate, look what can happen:
Your Dollars Buy Less Over Time
And inflation doesn’t just affect movie tickets; it can have an impact on your investments as well. Here’s what inflation did to the average returns of stocks, bonds, and cash investments over the last three decades.
Average Annual Returns Before and After Inflation 1972–2002
As you can see, stocks averaged a healthier 5.7% return after inflation. That compares with just a 1.8% “real” return for cash investments. To help fight the effects of inflation, you need to include some stocks in your long-term mix.
A Course of Action
Only you can decide how to invest your money. And the decision can be easier than you think. Just follow these steps:
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