You've made it to the last post in our continuing series, The 10 Beliefs. In this series, we’ve outlined the seven most common mistakes we see people make in planning and saving for retirement. In our last post, the ninth belief, we shared why you need to know where your money goes. Our last belief is: You Need Growth.
If you missed a post, or would like to start at the beginning, scroll to the bottom of this post for a complete listing.
One indisputable risk in retirement is outliving your money. But for many, they focus on the short term and their fears of the fluctuating stock market. They are confused about what the real risk is in investing.
Instead of looking long term, they focus on the ups and downs of the market. As a result, when the market makes a correction, they get scared and often sell out in a panic. But those corrections aren’t the real risk.
But they aren’t alone in their confusion. The media has muddied the water, making it unclear to the untrained eye what real risk is… We must understand that insufficient growth is where your risk truly lies. The short-term fluctuations of the stock market are actually called “volatility.”
You must have that volatility to get growth, and growth is important because it is what grows your account balance when your paychecks stop. Growth is what keeps the rising cost of things, inflation, from burying you.
So if the stock market’s volatility has you biting your nails, remember these two things.
1. Volatility and risk are not the same thing. Volatility is the swing from one direction to another in the market. Volatility is vital to growth. If you don’t have it, you are likely to not get the growth you need to keep up with expenses, inflation, taxes, etc...
2. The fluctuations of the stock market are not really loss… unless you sell when your stocks are down and realize that loss. Otherwise, the market has always, and will likely continue, to come back higher than it was before.
As financial advisors, part of Our Fiduciary Promise to our clients is on-going coaching. We remind our clients that growth is important, and volatility isn’t risk.