Invest for the long term

In retirement

Staying the course with a plan for long-term investment can pay off over time. While it may be tempting to place your savings into low-return conservative investments, you should also consider the risk that you may outlive your assets or that your assets will not keep pace with inflation.

Countering the effects of inflation with a plan for long-term investment

Even at a moderate 3% rate, inflation can cut the purchasing power of your retirement savings almost in half over 20 years. If you're entirely invested in cash and short-term investments, these assets are likely to shrink in "real" value during a long retirement.

By comparison, stocks have historically outpaced inflation and provided strong returns over the long term. If you are concerned about losses in the stock market, there may be ways to adjust your asset allocation so that your overall portfolio is somewhat less volatile — without giving up all of its growth potential.

Enjoying a longer life

People are living longer these days, meaning your retirement savings may have to last a long time as well. How long? According to the Society of Actuaries¹:

• A 60-year-old man has a 50% chance of living to age 84 or older.
• A 60-year-old woman has a 50% chance of living to 87 or older.
• At least one member of a 60-year-old couple has a 50% chance of living to be 91 or older.

Longevity trends suggest that these remarkable numbers will continue to rise.

Your total investment time horizon is longer than you may have thought. Depending on your age today, you could be creating and managing an investment strategy for 20 years or more.

Market timing can be costly

The graph below shows how a hypothetical $100,000 investment in stocks would have been affected by missing the market's top-performing days over the 20-year period from January 1, 1992 to December 31, 2011. For example, an individual who remained invested for the entire time period would have accumulated $450,022, while an investor who missed just five of the top-performing days during that period would have accumulated only $298,539.

Markets tend to recover

History is on the side of investors with a long-term investment approach. Volatile markets are a fact of life — as are market recoveries. Between World War II and 2008, there were 10 recessions, with an average market decline of 22.6%.

But you may be surprised by the size of the subsequent recoveries: 12 months following each market low point, prices were up an impressive average of 32%. What does this tell us? Be patient and stay invested. Markets tend to bounce back from downturns, typically with a healthy revival.

An Ameriprise financial advisor can help you define and create a strategy to give you the best chance for long-term success.