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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
A movie ticket now costs:$7.00
In 20 years:$12.64*
In 40 years:$22.83*
*Assumes an average annual inflation rate of 3%.

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
Return Before InflationInflation RateReal Return
Cash Investments6.8%5.0%1.8%
Source: The Vanguard Group.

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:
  1. If you’re not sure what mix is right for you, complete Vanguard’s Investor Questionnaire. It will provide you with a suggested investment mix based on your goal, time horizon, and risk tolerance. The questionnaire is available online at or call Vanguard® Participant Services for a paper version.
  2. Once you have a target mix, compare it to your current mix by looking at the “pie chart” on your Vanguard® account statement.
  3. If you need to make investment changes, you may change how your future contributions are invested or exchange (transfer) money from one fund to another.
  4. To make an investment change, go to or call 1-800-523-1188.*

*You can register for immediate online account access at You will be asked your plan number Social Security number, birth date, and home ZIP code. You will need your Social Security number and personal identification number (PIN) to use VOICE. If you don’t have a PIN, call Vanguard at 1-800-523-1188.

Vanguard is a trademark of The Vanguard Group, Inc. All other marks are the exclusive property of their respective owners.

Text ©2003 The Vanguard Group, Inc. All rights reserved.