Stay calm in the face of an emergency. That is the rule of thumb in pretty much every situation in life, and it applies just as well to retirement planning in a stormy economy. The first reaction of many in these circumstances may be to jump ship. In response to the turbulent waters of today’s financial markets, many investors consider selling the investments that have experienced losses and taking refuge in safer investments such as government bonds or other investments with lower risk.
Missing the market’s best days can be a costly mistake
Past performance is no guarantee of future results. Performance shown is historical index performance and not illustrative of any specific fund’s performance. This is a hypothetical example used for illustrative purposes only. The return figures are based on a hypothetical $10,000 investment in the S&P 500 Index from Oct 01, 2008 through Oct 01, 2018. The lump sum investment in common stocks would have reflected the same stocks/weightings as represented in the S&P 500 Index. The example does not represent or project the actual performance of any security, or other investment product. The hypothetical figures do not reflect the impact of any commissions, fees or taxes applicable to an actual investment. The S&P 500® Index is an unmanaged, market capitalization-weighted index of 500 widely held U.S. stocks recognized by investors to be representative of the stock market in general. It is provided to represent the investment environment existing for the period shown. The returns shown do not reflect the actual cost of investing in the instruments that comprise it. You cannot invest in an index. Source: Commodity Systems, Inc. (CSI) via Yahoo Finance.
Keep an eye to the horizon
Reacting to market downturns by abandoning your long-term strategy can have a significant impact. As the above chart illustrates, had you invested $10,000 in the securities included in the S&P 500 Index on Oct 01, 2008, your investment would have grown to $25,075 by Oct 01, 2018 – an average annual total return of 9.63%. In contrast, had you pulled your money out of the market during one of the low points of that 10 year period, you could have missed out on investment gains in the S&P 500 Index during the period and reduced your overall investment gain. If you missed the market’s 10 best days of that period, your 9.63% average annual total return would have decreased to 2.46%. What’s more, had you missed the market’s 20 best days, your average total return would have decreased to -1.67%.
Stay the course
The following chart shows how one dollar invested in the S&P 500 Index in October of 1978 and left alone until October of 2018 (an expanse of time that witnessed the financial panic of 1987, the September 11 terrorist attack in 2001, and the financial crisis of 2008) would have grown to $28.52* during those years. This illustrates historically the potential of remaining in the market for the long term.
* Only includes market growth; does not take inflation into account.
This chart is for illustration purposes only and represents a hypothetical investment in the S&P 500® Index. Such a performance does not represent the performance of any Voya® fund. Index performance assumes reinvestment of all income. The S&P 500® Index is an unmanaged, market capitalization-weighted index of 500 widely held U.S. stocks recognized by investors to be representative of the stock market in general. An investor cannot directly invest in an index. However, this index accurately reflects the historical performance of the represented assets. Investing involves risks of fluctuating prices and the uncertainties of rates of return and yield inherent in investment.
Source: Commodity Systems, Inc. (CSI) via Yahoo Finance.
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1 Advisory Services provided by Voya Retirement Advisors, LLC (VRA). VRA is a member of the Voya Financial (Voya) family of companies. For more information, please read the Voya Retirement Advisors Disclosure Statement, Advisory Services Agreement and the ABA Retirement Funds Program’s (“the Program’s”) Fact Sheet. These documents may be viewed online by accessing the advisory services link(s) through the Program’s website at www.abaretirement.com after logging in. You may also request these from a VRA Investment Advisor Representative by calling the Program’s information line at 800.348.2272. Financial Engines Advisors L.L.C. (FEA/Financial Engines) acts as a sub advisor for VRA. FEA is a federally registered investment advisor and wholly-owned subsidiary of Edelman Financial Engines, LLC. Neither VRA nor FEA provides tax or legal advice. If you need tax advice, consult your accountant, or if you need legal advice, consult your lawyer. Future results are not guaranteed by VRA, FEA or any other party, and past performance is no guarantee of future results. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All other marks are the exclusive property of their respective owners. FEA and Edelman Financial Engines, L.L.C. are not members of the Voya family of companies. © 2018 Edelman Financial Engines, LLC. Used with permission.