Seven time-tested strategies for guiding investors through today’s challenges and toward tomorrow’s goals.
Investors should start early by saving more, investing with discipline and having a plan for their future.
People who are 65 today have a very good chance of living to 80 or 90. But studies reveal many of us have not saved enough for the retirement years.
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Average life expectancy at age 65
Probability one person in a couple reaches 85 years old
and perhaps, saving and investing more
%
89
$120,000
PLAN ON LIVING
A LONG TIME
1
Income needed to beat inflation
Income generated
and it doesn’t earn what it used to
$2,200
$837
1990
$5,000
$8,000
2019
Income earned by $100,000
investment in a 6-month CD
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While interest rates have risen on many cash accounts, the average rate on a traditional savings account is still well below the rate of inflation, yet more than $17 trillion in cash still sits on the sidelines.
Investors often think of cash as a safe haven during volatile times, or even as a source of income. However, despite a more hawkish stance by the Federal Reserve, nominal and real yields are still low relative to history. Investors should be sure an allocation to cash does not undermine their long-term investment objectives.
CASH ISN'T ALWAYS KING
2
Dec. 2021
Dec. 2021
$208,215
$114,272
Return with
dividends reinvested
There is no guarantee that companies will declare, continue to pay or increase dividends.
Return,
price only
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An initial investment of $10,000 in the S&P 500 over the last 20 year
Compounding can make an exponential difference over time, compared to stock price appreciation alone.
Reinvesting dividends lets earnings continue to earn.
and have them working for you
HARNESS THE POWER OF DIVIDENDS AND COMPOUNDING
3
AVOID EMOTIONAL BIASES BY STICKING TO A PLAN
Diversification does not guarantee investment returns and does not eliminate the risk of loss. Diversification among investment options and asset classes may help to reduce overall volatility.
Dalbar's study titled "Quantitative Analysis of Investor
Behavior" credits these numbers in part to badly timed -
and often emotionally driven - investment decisions.
Returns in a 60/40 stock/bond
portfolio
Average investor returns
Over 20 years
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%
7.4
%
3.6
A portfolio that included bonds saw reduced losses during the financial crisis, enabling these diversified portfolios to recover much faster than a portfolio of stocks alone.
Investors often lament that a diversified portfolio has failed keep up with the stock market during bull markets. However, as the chart shows, a 60/40 portfolio is your friend during the worst of times. Over the last 20 years, a 60/40 portfolio saw reduced daily losses on the S&P 500’s bottom decile days
and avoid the urge to time the market
Where U.S. investors
are investing
United States global GDP
The United States accounts for only a small fraction
of global GDP, yet the majority of U.S. investors are
putting their money into U.S.-based assets.
%
72
%
24
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Though the U.S. accounts for only 1/3 of global capital markets, Americans
concentrate 70% of their investments at home
Another costly and common investing bias: investing in what’s familiar.
Don’t let biases—home-country or otherwise—sway your better judgment.
AVOID EMOTIONAL BIASES BY STICKING TO A PLAN
4
%
75
ended in
positive returns
Of the last
42 years
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Volatility is unlikely to derail a long-term allocation. Investors therefore need a plan for riding out volatile periods instead of reacting emotionally.
Every year has its rough patches. However, despite the many pull-backs, 75% of those years ended with positive returns.
and plan on riding it out instead of reacting emotionally
Volatility is normal, so don’t let it derail you
6
5
on a well-diversified portfolio,
over the past 15 years.
Annual return
%
6.1
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Through it all, a diversified portfolio of stocks, bonds and other uncorrelated asset classes proved itself a winner.
In the last 15 years, the world endured multiple natural disasters, numerous geopolitical conflicts and the deepest economic recession in the post-WWII era.
and it is a winning strategy over the long run
DIVERSIFICATION WORKS
STAYING INVESTED MATTERS
$2,257
$32,421
Missed 60 best days
-7.17% RETURN
6.06% RETURN
Consumer Sentiment Index and
subsequent 12-month S&P 500 returns
Fully invested
When investors feel gloomy and worried about the outlook, their natural tendency is to sell risk assets in general and stocks in particular. However, history suggests that trying to time markets in this way is a mistake. Over the last 50 years, there have been eight distinct peaks and troughs in the University of Michigan Consumer Sentiment Index. On average, buying at a confidence peak yielded a return of 4.4% while buying at a trough returned 24.5%.
Market timing can be a dangerous habit. Sometimes, investors think they can outsmart the market; other times, fear and greed push them to make emotional, rather than logical, decisions.
and it is the most essential principle of all
STAYING INVESTED MATTERS
A blend of stocks and bonds has not suffered a negative return over any five-year rolling period in the past 70 years
70 Years
stocks
%
60
bonds
%
40
While markets can always have a bad day or even year, history suggests investors are less likely to suffer losses over longer periods.
and it is the most essential principle of all
67 Years
7
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STAYING INVESTED MATTERS
Seven time-tested strategies for guiding you through challenging markets and toward tomorrow’s goals.
EXPLORE THE INVESTING PRINCIPLES
EXPLORE THE INVESTING PRINCIPLES
1
2
3
4
5
6
7
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EXPLORE FULL GUIDE
TO THE MARKETS
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2018
$8,000
$5,000
1990
$589
$2,000
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STAYING INVESTED MATTERS
Consumer Sentiment Index and
subsequent 12-month S&P 500 returns
Avg. subsequent 12-mo. S&P 500 returns
8 sentiment peaks
+4.1%
8 sentiment troughs
+24.9%
Consumer Sentiment Index and
subsequent 12-month S&P 500 returns
Avg. subsequent 12-mo. S&P 500 returns
8 sentiment peaks
+4.1%
8 sentiment troughs
+24.9%
Average life expectancy at age 65
YEAR
1990
84.0
WOMEN
MEN
DIFFERENCE
80.0
4.0
2020
84.5
82.0
2.5
2090
89.3
87.2
2.1