Expert ADVICE
unacceptable. Consequently, you’ll want to make appropriate financial decisions to help maintain your financial independence.
The Risks of Not Investing
YOU MIGHT NOT BE ABLE TO RETIRE ON YOUR TERMS. You would probably like to decide when you retire and how you’ll retire — that is, what sort of lifestyle you’ll pursue during retirement. But both these choices may be taken out of your hands if you haven’t invested enough to retire on your own terms.
think you are “playing it safe.” After all, you might reason, your principal is protected — so even if you don’t really make any money, you’re not losing it either. But that’s not strictly true, because if your money is in investment vehicles that don’t even keep up with inflation, you can lose ground. In fact, even at a relatively mild three percent annual inflation rate, your purchasing power will decline by about half in just 25 years.
Bob Graham
Financial Advisor Edward Jones Investments 510 N. Guadalupe Street, Suite L Santa Fe Office 505.820.0076 Toll Free 866.830.0076 bob.graham@edwardjones.com www.edwardjones.com | | |
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ou’ve no doubt heard about the risks associated with investing. This investment carries this type of risk, while that investment carries another one. And it is certainly true that all investments do involve some form of risk. But what about not investing? Isn’t there some risk associated with that, too? In fact, by staying on the investment sidelines, or at least by avoiding long-term, growthoriented investments, you may incur several risks. Here are some to consider:
YOU MIGHT OUTLIVE YOUR MONEY For a 65-year-old couple, there’s a 50 percent chance that one spouse will live past age 90, according to the Society of Actuaries. This statistic suggests that you may need your investments to help provide enough income to sustain you for two, or even three, decades in retirement. YOU MIGHT NOT BE ABLE TO MAINTAIN YOUR FINANCIAL INDEPENDENCE. Even if you don’t totally run out of money, you could end up scrimping by — or, even worse, you could become some-what dependent on your grown children for financial assistance. For most people, this prospect is
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Staying the Course Investors tend to see short-term volatility as the enemy. Volatility may lead many investors to move money out of the market and “sit on the sidelines” until things “calm down.” Although this approach may appear to solve one problem, it creates several others: #1) When do you get back in? You must make two correct decisions back-to-back; when to get out and when to get back in. #2) By going to the sidelines you may be missing a potential rebound. This is not historically unprecedented; see chart below. #3) By going to the sidelines you could be not only missing a potential rebound, but all the potential growth on that money going forward. We believe the wiser course of action is to review your plan with your advisor and from there, decide if any action is indeed necessary. This placates the natural desire to “do something”, but helps keep emotions in check.
Intra-Year Declines vs.
Calendar Year Returns
Volatility is not a recent phenomenon. Each year, one can expect the market to experience a significant correction, which over the last three decades has averaged approximately 14%. Although past performance is no guarantee of future results, history has shown that those who chose to stay the course were rewarded for their patience more often than not. 50% 34%
35%
20%
5%
-25%
15%
15%
-7% -17% -18% -17%
27%
-13%
23% 14%
-7%
4%
13%
9%
7%
-6% -6% -5%
-8% -8%
-8% -9%
30%
26% 20%
12% 2%
1%
-10%
31%
26% 20%
17%
-2%
3%
-10% -13% -23% -3%
-9%
-8%
-11%
-12%
-19%
-20%
-8% -7% -8% -14%
-17% -30%
-34%
-40% -55%
27%
26%
26%
-10%
YOU MIGHT NOT KEEP UP WITH INFLATION If you put all your money under the proverbial “mattress” or, more realistically, keep it all in “cash” instruments and very short-term invest-ments, you might
YOU MIGHT NOT BE ABLE TO LEAVE THE TYPE OF LEGACY YOU DESIRE Like most people, you would probably like to be able to leave something behind to your family and to those charitable organizations you support. You can help create this type of legacy through the appropriate legal vehicles — i.e., a will, a living trust and so on — but you’ll still need to fund these mechanisms somehow. That means you’ll need to draw on all your financial assets, including your investments. Work with your financial advisor to determine the mixture of growth and income investments you need during your working years and as you move toward retirement to help you meet your retirement goals. However you do it, get into the habit of investing, and never lose it — because the risks of not investing are just too great.
4%
-38%
13%
11%
0%
-1%
-10%
-10% -16%
-6% -7% -12%
-19%
-28% -34% -49%
‘80 ‘81
‘82 ‘83 ‘84
‘85 ‘86 ‘87
‘88 ‘89 ‘90
‘91 ‘92 ‘93 ‘94
‘95 ‘96 ‘97
‘98 ‘99 ‘00
‘01 ‘02 ‘03 ‘04
‘05 ‘06 ‘07
‘08 ‘09 ‘10
‘11 ‘12 ‘13 ‘14 ‘15
Source: First Trust Advisors L.P., Bloomberg. The benchmark used for the above chart is the S&P 500 Index. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Returns are based on price only and do not include dividends. This chart is for illustrative purposes only and not indicative of any actual investment. These returns were the result of certain market factors and events which may not be repeated in the future. Past performance is no guarantee of future results. Not FDIC Insured • Not Bank Guaranteed • May Lose Value
First Trust Portfolios L.P. • 1-800-621-9533 • www.ftportfolios.com