Exactly four times since 1926, the Standard & Poors 500 Index has declined by 25% or more in a single year. 2008 was of course the most recent, the others being 1974,1973 and 1931. The way that investment returns are ordered is sometimes called “Sequence of Returns”, but for our purposes we call this “The Bad Luck Scenario.”
The Bad Luck Scenario is a real risk and a very real worry among those in the run up phase prior to retirement or those already retired. Since most of our clients fall into one of these categories, we recently put together (with the able assistance of our interns Halle Hughes and Sam Morrison), a brief animated video on this topic.
As we point out in this video, in times of anxiety it is useful to recall “why” you invest in the first instance. For most, the primary reason is to offset ever increasing living costs. Inflation erodes the value of your investments over time such that your lifestyle is impacted. The most reliable path to offset inflation over the long term is by investing in stocks. Remember, everything you buy costs more every year….not just the years that the stock market moves higher.
At J.E. Wilson Advisors, we specialize in The Art of Financial Science. Ready for a real conversation?